Q3 2023 Pinnacle Financial Partners Inc Earnings Call

We look forward to talking with you soon please hold the line and we'll be right back with you.

[music].

Yeah.

Good morning, everyone and welcome to the Pinnacle financial partners third quarter 2023 earnings conference call hosting the call today from Pinnacle Financial partners is Mr. Terry Turner, Chief Executive Officer, and Mr. Harold Carpenter, Chief Financial Officer.

Please note pinnacle's earnings release, and this morning's presentation are available on the Investor Relations page of their website at Www Dot P. M. S. P dot com.

Today's call is being recorded and will be available for replay on pinnacle's website for the next 90 days at this time all participants have been placed on listen only mode. The floor will be opened for questions. Following the presentation.

If you wish to enter the queue to ask a question. Please press star one on your phone at any time.

During this presentation, we may make comments, which constitute forward looking statements. All forward looking statements are subject to risks uncertainties and other factors that may cause the actual results performance or achievements of pinnacle Fletcher financial to differ materially from any results expressed or implied by such forward looking statements.

Many of such factors are beyond pinnacle financial's ability to control or predict and listeners are cautioned not to put undue reliance on such forward looking statements a more detailed description of these and other risks is contained in Pinnacle Financial's annual report on Form 10-K for the year ended December 31st 2022.

And subsequently filed quarterly reports.

Pinnacle financial disclaims any obligation to update or revise any forward looking statements contained in this presentation, whether as a result of new information future events or otherwise. In addition, these remarks may include certain non-GAAP financial measures as defined by SEC regulation G. A presentation of the most directly comparable GAAP financial.

Measures and a reconciliation of non-GAAP measures at the comparable non-GAAP measures will be available on pinnacle Financial's website at Www Dot P. M. S. P dot com with that I am now going to turn the presentation over to Mr. Terry Turner, Pinnacle's, President and CEO .

Thank you Paul and thank you for joining US here. This morning, most of you endure these call up a board. So you know we're gonna began every one of these calls with the shareholder value dashboard because these metrics our north star. There are a lot of interesting things that can be talked about but ultimately we're here to produce shareholder value.

This is how we think you do that and of course I always also that these non-GAAP measures. Because this is really manage the business.

At a glance you can see that we continued to grow revenue and EPS more rapidly and reliably than peers and we continue to grow our balance sheet volumes more rapidly and reliably than peers.

We relentlessly focus on tangible book value.

Also our asset quality continues to be strong with problem asset metrics continued to outperform peers at 23 basis points net charge offs are excellent, but a little lumpy you can see that they jumped up just a little bit this quarter because of a large much publicized syndication we were in but generally our non performers and classified assets.

It had been peer leading with MPAA is ranked number three among peers in Q2 and classified assets number two among payers. So from 30000 feet. It's my opinion that we continued to deliver on all of the key drivers of real long term shareholder value creation, so with that let's take a more in depth look at the quarter.

Thanks, Jerry Good morning, everybody, we will again start with deposits from 40 linked quarter annualized average growth of almost 19% in the third quarter was again.

All positive for us the third quarter was yet another indication that obtaining deposits in an environment where.

It can be unpredictable and very much doable for this franchise.

Early in the third quarter committed the rate pressures remain fairly intense as we are.

Approach the middle part of the quarter. It appeared that rate pressures did subside somewhat mixed shift of noninterest bearing to interest bearing slowed during the third quarter, and we were down $112 million much less than the prior quarters of this year.

All in deposit cost increased to $2, 92% I'd like to point out that we ended the quarter with the spot rate at quarter end up 2.7% only five basis points higher than the average for the quarter.

That is the smallest difference we've seen between the average rate in the quarter in rate and a long term signal.

Perhaps a much more modest increase in deposit rates in the near term and are optimistic about the pace of deposit rate increases as we get into the fourth quarter.

We also believe we will continue to be disciplined as to the relationship between pricing and growth of our deposit.

We believe we will continue at a more deliberate pace for gathering deposits without leaning heavily on the rate component of our growth as many of you know our goal is to be the best organic deposit growth and we feel like we are on our way Terry will speak more to our deposit gathering capabilities in a minute.

The third quarter was another strong loan growth quarter for us as we were reporting an eight 4% linked quarter annualized average loan growth.

Given that we're maintaining our ERP logos.

2023, and loving maintains probe.

As we've mentioned over the last several quarters, we're exhibiting much more discipline on fixed rate loan pricing, which ended the quarter with average fixed rate loan yields on new originations of seven 7% spread maintenance all floating and variable rate loans continues to be strong. We're pleased with yields on our originations I believe.

We can continue to maintain similar loan spreads as we enter the fourth quarter.

At the top chart reflects our NIM decreased 14 basis points, which is more than we anticipated at the start of the quarter. When we didn't anticipate was an increase in average cash as we have more cash on our balance sheet spillover at the end of the second quarter into the third quarter during the third quarter, our cash balances did.

Decreased modestly as our liquidity did decrease during the quarter. So we're believing that liquidity will be months will be less impactful on our margins in the fourth quarter that said with a backdrop of a slowing deposit pricing and with fixed rate loans repricing at better spreads were growing more confident that our email.

As found a bottom are we at least are fairly close.

We're anticipating our fourth quarter NIM to approximate our third core NIM or perhaps be slightly now obviously should deposit pricing heat up in conjunction with competitors, just becoming more aggressive we might need to revisit that assertion, but as we sit here today, we feel like we're close.

Our rate forecast, we believe is consistent with most rate forecasts are.

Our planning assumption is that we're not going to see another fed rate increase in future fed rate decreases are not expected until the second half of next year.

Cause a believer in the higher for longer rate environment with that we don't believe are near term that rate increase will be that impactful to us either in the fourth quarter or as we entered 2024.

As you know the macro environment is volatile and very unpredictable right now and given that we will have a continued bias towards elevated interest rate risk management regarding liquidity of our balance sheet and modest capital accretion.

As for credit, where again today, our traditional credit metrics and loan portfolio continue to perform well in the third quarter. Our belief is that credit should remain consistent for the remainder of the year. Our credit officers continue their routine periodic credit reviews of portfolio and bring resources to bear for borrowers.

Exhibiting potential signs of weakness.

CRE appetite in chart on the bottom right is largely unchanged from the prior quarter, but does reflect perhaps a slightly more conservative appetite for multifamily and industrial and what we have shown over the last few quarters.

Charge offs did increase 23 basis points during the quarter during the quarter. There was a lot of information out there about a single syndicated credit out of Atlanta, we were participating in some.

A participant in the syndication for about $10 million.

Not sure of any recovery opportunities at this point, but we will continue to work with our lead bank and the syndicate to recover whatever might be available.

We've shown this slide before the top left chart deals with trends in construction originations, we began dramatically reducing our appetite for construction last summer, which is consistent with the chart a modest amount of new construction originations during the third quarter was primarily due to new home construction loans under existing officer.

Got us lots to our residential homebuilders.

Secondly, much discussion about renewables.

Commercial real estate fixed rate loans, which is the objective of the chart on the top right over.

Over the next several quarters, we will have approximately a $100 million in fixed rate commercial real estate renewals coming up for repricing or the average rate on these loans is currently around four 5%.

Our current yield targets for these loans at renewal will be in the 7% to 8% range.

Altogether, we have about $6 billion and fixed rate loans maturing over the next two years with a weighted average yield of four 4%. Thus, we see real opportunity from a repricing perspective.

Now all of these and as always I'll speak to in a few minutes, excluding BHG and the impact of the gain on sale of fixed assets and the loss on the sale of investment Securities fee revenues were up slightly from the second quarter.

Couple of items to point out here, which we believe are noteworthy during the quarter, we recognized $5 9 million in revenues from our solar tax investment that we entered into in December of 2022, We received third party report S&P adjusted value of investment during the third quarter, which provided us the support for the results we posted.

We're excited about our solar business and we and what we believe it can and will accomplish started last year, it's relatively new to us as we only have about $130 million in balances, but we havent staffed with seasoned industry veterans from large cap franchises. So we expect great things from this business line.

Just like many of our other equity investments.

Valuation gains and losses are difficult to predict and thus the ongoing contribution to our fee revenues will always be choppy.

As I mentioned, we will go into BHG more in just a second but wanted to emphasize that BSG continued each represents less of our pre tax revenues this quarter and in previous quarters. As we noted in last nights press release, we believe BHG has decreased to <unk>.

9% contribution to this year's fully diluted EPS compared to approximately 20% last year.

We anticipate that the revenues exclude BHG the gain on the sale of fixed assets and investment securities losses will come in at around a mid to high single digit growth rate for 'twenty three over 22.

Not a lot to say here. This time on expenses total expenses came in about where we thought we did adjust our incentive accrual downward to 65% target this quarter based on where we believe our performance metrics come in for all of 2023.

Operator: Thank you for holding.

Operator: We look forward to talking with you soon. Please hold the line and we'll be right back with you Thanks for holding. We appreciate your time and patience. Please stay on the line.

Our outlook for expense growth for 2023 over 2022 remains in the high single low double digit.

Range same as last time, one quick comment on FDIC insurance.

We are expecting a special assessment to replenish the bank insurance fund before yearend.

Our understanding is that the industry will likely recognize that as a charge to the P&L when that amount is no. Just so you know we expect that charge to be in the $25 million to $30 million range and this charge is not reflected in our outlook for 2023 expense growth.

Yes.

Our tangible book value per common share decreased to $48 78 at quarter end down slightly from June 30. The decrease was primarily attributable to the rise in the intermediate term interest rates during the third quarter and the resulting impact of that on the market values of our Iaff's portability and of course that you'll see.

Operator: Good morning everyone and welcome to the Pinnacle Financial Partners, third quarter of 2023 earnings conference call.

Operator: Hosting the call today from Pinnacle Financial Partners is Mr. Terry Turner, Chief Executive Officer, and Mr. Harold Carpenter, Chief Financial Officer. Please note Pinnacle's earnings release and this morning's presentation are available on the Investor Relations page of their website at www.pnfp.com, that may cause the actual results, performance or achievements of Pinnacle Financial to differ materially from any results expressed or implied by such forward-looking statements. Many of such factors are beyond Pinnacle Financial's ability to control or predict and listeners are cautioned not to put undue reliance on such forward-looking statements.

Our outlook for the fourth quarter is that our capital ratios will likely be flat to down next quarter contributing this will be the usual fourth quarter P&L matters fourth quarter loan growth et cetera.

Of note is that BHG will report their day, one seasonal adjustment in the fourth quarter and this will serve to reduce our capital accounts by a modest amount.

Day, one noncash adjustment will not impact our fourth quarter earnings repeat it will not impact our fourth quarter earnings and should approximate a charged to capital of approximately $40 million subsequently NBC will likely need to maintain their reserves that amounts approximately 9% of total balance sheet loans.

Impact of maintaining loss reserves at those levels going forward has been considered in our fourth quarter outlook for BHG.

We believe the actions we've taken to preserve tangible book value and our tangible capital ratio have served us well and we have no plans currently to alter our tier one capital stack and any sort of common or preferred at all.

On the bottom left of the slide detail several pro forma capital ratios as of the end of the September although we don't anticipate significant changes to the capital rules. We're pleased with these results and believe they will likely compare favorably to other peer banks.

Yeah.

Now a few comments about about BHG.

The top right chart is consistent with our previous quarterly earnings calls and detailed that production has been consistent over the last several quarters at about one to one 2 billion per quarter.

Operator: In addition, these remarks may include certain non-gap financial measures as defined by SEC regulation G. A presentation of the most directly comparable gap financial measures and the reconciliation of non-gap measures at the comparable non-gap measures would be available on Pinnacle Financial's website at www.pnfp.com.

Placements to the bank network were less in the third quarter, while placements are an institutional investor or again at the highest level ever can signal that demand for BHG paper.

One of the most respected asset managers in the country continues to be really strong.

As we look to the fourth quarter BHG believes origination volumes will likely be less than Q3 as they continue to shrink the credit box and they believe sales into the bank network could experience some decline over the next few quarters as that client base continues to wrestle with more restricted funding environment and we also believe BHG will likely want to be.

Terry Turner: With that, I am now going to turn to presentation over to Mr. Terry Turner, Pinnacle's president and CEO. Thank you, Paul, and thank you for joining us here this morning. Most of you have endured these calls before, so you know we're going to begin every one of these calls with this shareholder value dashboard because these metrics are North Star. There are a lot of interesting things that can be talked about, but ultimately we're here to produce shareholder value, and this is how we think you do that.

Neil loan inventories in the fourth quarter as they head into 2024.

That said Bhg's Bank network, which we believe is very unique and we believe would be difficult to replicate by any competitor, we will continue to grow and provide ample liquidity to BHG.

Terry Turner: And of course, always hustle to these non-gap measures because this is how I really manage the business. At a glance, you can see that we continue to grow revenue and EPS more rapidly and reliably than peers, and we continue to grow our balance sheet volumes more rapidly and reliably than peers. And that we relentlessly focus on tangible book value. Also, our asset quality continues to be strong with problem asset metrics, continuing to outperform peers at 23 basis points and that chargeoffs are excellent but a little lumpy.

As to liquidity, we presented this slide last time in order to provide additional insight with regard to the significant liquidity available.

One of the ESG and placement of their loan production.

<unk> successfully negotiated to profit on loan sales of about $400 million during the third quarter. Importantly, these type sales are executed with no recourse to BHG Lastly, BHG is anticipating their eighth capital markets transaction here in the fourth quarter. They are currently anticipating the volume for the securitization.

Terry Turner: You can see that they jumped up just a little bit this quarter because of a large much publicized indication we were in, but generally our non performers and classified assets have been peer leading with MPAs ranked number three among peers in Q2 and classified assets number two among peers.

We will likely be in the $300 million range. All things considered we believe BHG has assembled a very enviable liquidity platform, which has served us well for many years.

This is a useful information when we've shown in the past the Italian spread trends since the first quarter of 2021. The top chart represents the gain on sale of the off balance sheet Bank network in the bottom chart is a blended chart of all on balance sheet funding, which incorporates.

Terry Turner: So, from 30,000 feet, it's my opinion that we continue to deliver on all the key drivers, a real long-term shareholder value creation.

Harold Carpenter: So, with that, Harold, let's take a more in depth look at the quarter. Thanks, Terry.

Incorporates the historical buildup of balances.

We anticipate spreads for off balance sheet loan placements have come in somewhat with higher rates and a tightening of bhg's credit box.

Harold Carpenter: Good morning, everybody. We will again start with deposits reporting link quarter in last average growth of almost 19% of the third quarter was again a real positive for us. The third quarter was yet another indication that obtaining deposits in an environment where competitors can be unpredictable is very much doable for this franchise. The makeshift of non interest bearing the interest bearing slowed during the third quarter as we were down 112 million, much less than prior quarters of this year.

During the third quarter, the blended spreads for all balance sheet loans was slightly higher than the bank network given the balance sheet malls reflects the buildup of balances over the last three years.

As we head into the fourth quarter. These people believe that spreads for both on and off balance sheet loans should be consistent with the third quarter.

As we've noted in previous quarters, because she has tightened its credit box over the last several quarters, particularly with respect to lower tranches of its borrowing base production volumes remain strong even with tighter credit underwriting BHG refreshes. His credit score monthly always looking for indications of weakness in its borrowing base credit scores are obvious.

Harold Carpenter: All end deposit costs increased to 2.92%. I'd like to point out that we ended the quarter with a spot rate at quarter end of 2.97%, only five basis points higher than the average for the quarter. That is the smallest difference we've seen between the average rate and the quarter end rate in a long time, signaling to us perhaps a much more modest increase in deposit rates in the near term and are optimistic about the pace of deposit rate increases as we head into the fourth quarter.

Up from previous years diminished chart on the right is helpful to understand how much underwriting has improved and thus impact the loss content in the portfolio.

At.

The top of the chart of our lives, reflecting originations in 2012 and through 2015.

<unk> begin to level out at cumulative loss rates of 10% to 12%.

Vintages. After 2015 begin to reflect improved performance with the last leveling out within the 5% to 10% loss ranges.

Harold Carpenter: We also believe we will continue to be disciplined as to the relationship between pricing and growth of our deposit. We believe we can continue at a more deliberate pace for gathering deposits without leaning heavily on the rate component of our growth. As many of you know, our goal is to be the best organic deposit grower and we feel like we are on our way. Here we'll speak more to our deposit gathering capabilities in a minute.

BHG continues to allocate resources to the post Covid vintages of 2021 through the first half of 'twenty two as those vintages. The she believes were granted Hart Barbara warranted and thus skewing the lives loss rates higher for those loans.

This slide again to provide more information on credit and detailed reserve losses for both off balance sheet and on balance sheet loans.

Harold Carpenter: The third quarter was another strong, long growth quarter for us as we were putting 8.4% lead for annualized average long growth. Given that, we're maintaining our EOP length of for 2023 and low to maintains growth. As we mentioned over the last several quarters, we're exhibiting much more discipline on fixed rate loan pricing, which ended the quarter with average fixed rate loan yields on new originations of 7.17%. Spread maintenance on blooding and verbal rate loans continues to be strong.

She is optimistic about credit at the end of the third quarter typically for BHG, approximately 70% of the losses incurred in the first three years of origination, but with rate inflation as was mentioned about the 'twenty one in the first half of 2022 vintages.

So should it come to light.

As a result, BHG has expended significant resources to bulk up collection activities and we will be instituting instituting and person closings from new borrowers, which was suspended during COVID-19.

Harold Carpenter: We're pleased with yields on our originations and believe we can continue to maintain similar loan spreads as we enter the fourth quarter. At the top chart reflects our now decreased 14 basis points, which is more than we anticipated at the start of the quarter. What we did anticipate was an increase in average cash as we have more cash on our balance sheet spill over at the end of the second quarter into the third quarter.

Although higher than historical losses are likely for the near term the credit performance of the portfolio does appear to be improving.

Towards cautious optimism as we enter the fourth quarter and into 2024.

Yeah.

BHG had another strong quarter with approximately $1 billion on originations and are on track to achieve $3 $8 4 million of originations this year, which is slightly less than last year, but consistent with our outlook on the last quarter.

Harold Carpenter: During the third quarter, our cash balances did decrease modestly as our liquidity did decrease during the quarter. So we're believing as liquidity will be less impactful on our margins in the quarter quarter. That said, with a backdrop of slowing the positive pricing and with fixed rate loan reprising at better spread, we're growing more confident that our NEM has found a bottom where at least are fairly close. We're anticipating our fourth quarter now to approximate our third quarter now, or perhaps be slightly now.

As we mentioned last quarter BHG had a conservative bias going into the third quarter such that as they continually tighten the credit box production in the last half of the year was expected to be lower than the first half.

The current fourth quarter loan production forecast should approximate $600 million to $800 million in order to fall into 2023 full year guidance, which is less than good quarterly production levels. Thus far this this year.

During the quarter BHG and recorded record several one time expenses related to the Mark down of a building they anticipate selling as well as more balance of some software assets and other items that were related to some business lines that BHG has elected to not support any longer.

Harold Carpenter: Obviously, should deposit pricing heat up in conjunction with competitors just becoming more aggressive, we might need to revisit that assertion, but as we sit here today, we feel like we're close. Our rate forecast, we believe, is consistent with most rate forecast out. Our planning assumption is that we're not going to see another step rate increase in future step rate decreases. We're not expecting until the second half of next year. Call us a believer in the higher, longer rate environment.

These onetime charges amounted to approximately $10 million during the third quarter. These amounts have been incorporated in BSG results and outlook for 2023.

Net earnings for 2023 are forecasted at $175 million to $195 million inclusive inclusive of the onetime adjustments just mentioned.

Harold Carpenter: With that, we don't believe a near term rate increase will be that impactful to us either in the fourth quarter or as we enter 2024. As you know, the macro environment is volatile and very unpredictable right now and given that we will have a continued bias towards elevated industry risk management, guarding the equity of our balance sheet and modest capital accretion. As for credit, we're again, seeing our traditional credit metrics, and it was one of portfolio continued to perform well in the third quarter.

And is basically consistent with the range from last year's forecast.

Quickly the usual slide detailing our financial outlook for 2023, we have a bias currently toward a more cautious outlook when it comes to credit interest rates and capital our job is to manage the risk.

Face this franchise everyday what we know is that our business model remains relationship base nimble and resilient our management team has significant experience.

Harold Carpenter: Our belief is that credit should remain consistent for the remainder of the year. Our credit officers continue to routine, periodic credit reviews of portfolio and bring resources to bear for borrowers, exhibiting potential signs of weakness. The CRE appetite chart on the bottom right is largely unchanged from the prior quarter, but does reflect perhaps a slightly more conservative appetite for multi-family and industrial from what we have shown over the last few orders.

And has tackled economic downturn before we.

We have great confidence that we'll be able to manage the high quality banking franchise that our shareholders have come to expect from us and concurrently handle whatever curve balls get thrown our way and with that I'll turn it back over to Terry.

Thanks Harold.

Warren Buffett and others have famously said manage the fundamentals and tell the story and the stock will take care of itself I believe that at Pinnacle. We are managing what we believe are the fundamentals with critical variables, creating outsize shareholder value and.

Harold Carpenter: Chargeoffs did increase 23 basis points during the quarter. During the quarter, there was a lot of information out there about a single syndicated credit out of Atlanta. We were a participant in the syndication for about $10 million. Not sure of any recovery opportunities at this point, but we will continue to work with the lead bank and the syndicate to recover whatever might be available. We have shown this slide before the top left chart deals with trends in construction originations.

And so my goal here now is to tell the story crystalize extraordinarily valuable deposit franchise, we bill as an industry. We've been an award the last three quarters and in the fog of war, it's easy to get confused about what's really important.

Harold Carpenter: We began dramatically reducing our appetite for construction last summer, which is consistent with the chart. The modest amount of new construction originations during the third quarter was primarily due to new home construction loans under existing officer goddess lines to our residential home builders. Secondly, much discussion about renewals of the commercial real estate fix trade loans, which is the objective of the chart on the top right. Over the next several quarters, we will have approximately a $100 million fixed rate commercial real estate renewals coming up for repricing, where the average rate on these loans is currently around 4.5%.

We've all just witnessed three high profile franchises go to zero, primarily because of two things number one the enterprise wide risk management.

And my just they all took extraordinary risk and to the stickiness of their deposits and so the risk of management team is willing to take matters and how they use their security book matters and how they manage your interest rate sensitivity managers matters and how they manage concentrations matters and then I know they are dragged.

Retained their deposits matters, firstly I wouldn't want to be long any bank our size that stuck in the commodity trap that means the non differentiated franchise from a client's perspective, because in that case theres no ability to reliably gather deposits at a pace sufficient to sustain outside revenue in APAC.

Harold Carpenter: Our current yield target for these loans that renewal will be in the 7.5 to 8% range. All together, we have about $6 billion in fixed rate loans maturing over the next two years with the weighted average yields of 4.4%. Thus, we see real opportunity from a repricing perspective.

S growth and no ability to retain deposits in difficult times, which again jeopardizes the reliability of their growth, but a bank that can attract talent by virtue of being an employer of choice a bank utilizes its client experience is the primary basis by which attracts clat and retains clients are banks that can rapidly.

Harold Carpenter: Now on to these. And as always, I'll speak to VHG in a few minutes, excluding VHG and the impact of the gain on sale of fixed assets and the loss on the sale of investment securities, fee revenues were up slightly from the second quarter. A couple of others to point out here, which we believe are not worth it. During the quarter, we recognize 5.9 million revenues from a solar tax investment that we entered into in December of 2022.

And reliably grow net interest income the largest component of the EPS.

It's a valuable deposit franchise.

Anyone who's our me too political stories heard me talk about the political philosophy that excited associates produce engage clients and nothing enriches shareholders like engaged clients made in raving fans that bringing more business to you and refused to lead you in times of uncertainty.

Harold Carpenter: We received the third quarter report as to the adjusted value of the investment during the third quarter, which provided us with support for the results we posted. We're excited about our solar business and what we believe it can and will accomplish. Starting last year, it's relatively new to us as we only have about $130 million in balances, what we have in staff with season, industry veterans from large cap ranchers, so we expect great things from this business line.

Many times when I discuss that philosophy I've tried to list the prove it.

Workplace Awards, we've won the service and brand awards, we've won outside shareholder returns, we produced over short medium and long term.

Timeframes, but today I want to show you the power of building a great workplace of being an employer of choice I believe most of the banks that have leading market share positions in our footprint are hemorrhaging talent and while I can't provide a metrics prove it I do believe we're the employer of choice throughout our footprint what bank.

Harold Carpenter: Just like many of our other equity investments, valuation gains in losses are difficult to predict and thus the ongoing contribution to our key revenues will always be choppy. As I mentioned, we're going to BSG more in just a second, but one of the emphasized that BSG continues to represent less of our pre-tax revenues this quarter than in previous quarters. As we noted in last slide's press release, we believe BSG has decreased to a 9% contribution to this year's fully-guilded EPS compared to approximately 20% last year.

This produced a compound annual growth rate of revenue producers of 7%.

A 7% per annum increase in the number of experienced revenue producers, while still producing top quartile profitability that the deposits are valuable deposit franchise.

Harold Carpenter: We anticipate that B revenues, excluding BSG, again on the cell of fixed assets and investment securities losses, will come in and around a mid-to-high single-digit growth rate for 23 over 22. Not a lot to say here this time on expenses, total expenses came in about where we thought. We did adjust our incentive growth downward to 65% of the target this quarter based on where we believe our performance metrics will come in for all of 2023.

By virtue of the associate engagement, you're able to create you provide clients and experienced that lights them up that engages them in such a way that they want to bring you more of their business.

And they want their friends and colleagues they experienced the same thing those are what the researchers referred to as promoters at 57%. According to J D. Power. We have the second highest net promoter score of all of the top 50 banks in the United States based on assets.

Number two in the country, that's pretty tall cotton.

Harold Carpenter: Our outlook for expense growth for 2023 over 2022 remains in the high single-level double-digit range, things last time. One quick comment on FDFC insurance. We are expecting a special assessment to replace the bank insurance fund before you're in. Our understanding is that the industry will likely recognize that it's a charge that the P&L would not amount as known. Just so you know, we expect that charge to be in the $25 to $30 million range and this charge is not reflected in our outlook for 2023 expense growth.

J D power has more of a consumer slant. So we were a little more on coalition Greenwich, which is more focused on businesses. According to Greenwich, our ability to create an experience that results in raving fans promoters is literally one of the best in the nation I know no competitor in our footprint is coming close to a 79.

Net promoter score and I based sprouts of any bank in the country is exceeding 79 net promoter score.

And of course that begins to explain our substantial outperformance in terms of deposit growth shown here on the far right. Our net deposit growth our ability to attract and retain deposits is wildly better than peers. Both prior to the bank failures and subsequent to the bank failures and I'd say, that's a valuable deposit franchise.

Harold Carpenter: Our tangible book value per comment share decreased to $48.78 in down slightly from June 30th. The decrease was primarily attributable to the rise in the intermediate term interest rates during the third quarter and the resulting impact of that on the market values of our AFS portfolio and of course AOCI. Our outlook for the fourth quarter is that our capital ratios will likely be flat to down next quarter. Contribute this will be the usual fourth quarter P&L matters, fourth quarter, long growth, etc.

Nashville is the best case study of how this all works using the FDIC summary of deposit market share data you can see on the far left the market share leaders in Nashville at June 2000, and prior to Pinnacle opening in October of 2000.

Harold Carpenter: Of note is that these she will record their day one seasonal adjustment in the fourth quarter and this will serve to reduce our capital accounts by a modest amount. This day one non cash adjustment will not impact our fourth quarter earnings. Repeat it will not impact our fourth quarter earnings and should approximate a charge to capital of approximately $40 million dollars. Subsequently, BHG will likely need to maintain their reserves that amounts approximately 9% of total balance sheet loans.

I included the 2022 data in the middle not only so.

Usually say the outstanding market share we took in who we took it from but so you can see the most recent data on the far right that our model continues to grow deposit market share in Nashville in 2023 at a very rapid pace.

Much for the law of large numbers.

I hope I can bring to life for you is that while it is incredibly advantageous to be a large high growth markets, which we are nothing literally nothing is more valuable than a differentiated experience that can reliably take share from the weaker competitors that dominate our markets thinking about that over 23 years and it exists.

Harold Carpenter: The impact of maintaining loss reserves at those levels going forward has been considered at our fourth quarter outlook for BHG. We believe the actions we've taken to preserve tangible book value and our tangible capital ratio have served as well and we have no plans currently to alter our pure one capital stack. We need any sort of common or preferred offer. Short on the bottom left of the slide details several pro form of capital ratios as of the end of September. Although we don't anticipate significant changes to the capital rules, we're pleased with these results and believe they will likely compare favorably to other pure banks.

In Nashville, the top three bank gave up 27% share and we took nearly 21% of the market from them.

That's a valuable deposit franchise and honestly I'm not aware of a single bank in the country with that kind of deposit building franchise and while we've been at it the longest in Nashville.

Based on FDIC market share data for 2023, we're growing share in virtually every market that we're in all of those listed here have positive share growth.

Harold Carpenter: Now a few comments about VHG. The top right chart is consistent with our previous quarterly earnings call in detail that production has been consistent over the last several quarters at about 1 to 1.2 billion per quarter. Placed with us to the bait network, we're less in the third quarter while placed with us to the institutional investor, or again at the highest level ever, a signal that demand for VHG paper, by some of the most respected asset managers in the country, continues to be really sharp.

And look at this when you compare the deposit volumes, we're now producing in markets like Atlanta, and Washington D. C. So our first three years in Nashville, where we now dominate you have to be blown away by how that propel sustainable growth going forward that are valuable deposit franchise.

As Ive alluded to several times now to be a valuable deposit franchise. In addition to your ability to attract deposits is critical that you can retain deposits in times of crisis, and we don't need to invent metrics that we hope might be predictive of how sticky. The bank's deposits are we can know right I would say the best test of a bank's ability to.

Harold Carpenter: As we look to the fourth quarter, VHG believes origination bonds will likely be less than Q3 as they continue to shrift their credit box, and they believe sales under the bait network could experience some decline over the next few quarters, as that cloud based continues to wrestle with a more restricted funding environment, and we also believe VHG will likely want to build loan inventories in the fourth quarter as they head into 2024. That said, VHG's bait network, which we believe is very unique, and we believe would be difficult for us to pay by any VHG competitor, will continue to grow and provide ample liquidity to VHG.

Thanks Clay.

<unk> was how well they did in that period of time, leading up to and immediately following the Silicon Valley Bank.

Think about it it was the worst bank scare since the great depression.

And it occurred in this time of frictionless transfers, it's never been easier to transfer our bank balances and at this time.

Really that's we saw three relatively large bank failures a fail.

Harold Carpenter: As to liquidity, we presented this last time in order to provide additional insight with regard to the significant liquidity channels available to VHG in placement of their loan production. VHG's success plan negotiated two private loan sales of about $400 million during the third quarter, and importantly, these time sales are executed with no recourse to VHG. Lastly, VHG is anticipating their eighth capital markets transaction here in the fourth quarter. They are currently anticipating the volume for the securitization will likely be in the $300 million range.

Precisely for that reason, but at pinnacle and that extreme crisis, not one of our 200 largest fostered left us in the months following those failures not one and the balances of those 200 totaled $3 9 billion at the time of the SBB failure and $3 9 billion roughly a month after that failure.

It's just hard to leave a bank do you Love and trust and that's a valuable deposit franchise.

Further proof of the power of the franchise is it according to Greenwich over the next six to 12 months in our footprint Pinnacle is the most likely bank to earn more business and the least at risk of losing business. The most likely bank derm business and the least likely of losing business for each of the three banks that dominate our foot.

Harold Carpenter: All things considered, we believe VHG has assembled a very indiable liquidity platform that should start being well for many years now.

Harold Carpenter: This is the usual information we've shown in the past details. VHG has since the first quarter of 2021. The top chart represents the gain on sale of the off-balance sheet bank network and the bottom chart is a blended chart of all on-balance sheet funding, which incorporates the historical build-up of balances. And then anticipate it spreads for off-balance sheet loan placements have come in somewhat with higher rates and a tightening of VHG's credit box.

In terms of existing deposit client share in other words for each of the three market share leaders between 17 and 22% of their clients indicate they are likely to lose business in the next six to 12 months.

Huge opportunity for us to produce outsized growth given our proven ability to take their share and because our clients engagement with us nearly 40% of our clients indicate a likelihood that we will earn more of their business.

Harold Carpenter: During the third quarter, the blended spreads for off-balance sheet loans were slightly higher than the bank network, given the balance sheet loans reflect the build-up of balances over the last three years. As we headed the fourth quarter, VHG believed that spreads for both on and off-balance sheet loans should be consistent with the third quarter. As we noted in previous quarters, VHG has tightened this credit box of the last several quarters particularly with respect to lower charges of its borrowing base.

I'd say that the franchise is most likely to earn new business and least likely to lose business is a very valuable deposit franchise.

The ultimate goal all that rapidly and reliably increase total shareholder returns over the last 10 years. Our total shareholder returns have substantially outperformed all of our peers as.

As we've grown and asset size, our p/e multiple has contracted more than most of our peers largely I suspect due to fear of the law of large numbers and so for us to produce outsized total shareholder returns as RP contracts, we had to substantially outgrow peers in terms of EPS, which we did but given that net interest.

Harold Carpenter: Production lines remain strong even with tighter credit underwriting. VHG refreshes is credit score monthly, always looking for indications of weakness in its borrowing base. Credit scores are obviously up from previous years. The finished chart on the right is helpful to understand how much underwriting has improved and does impact on the lost content in the portfolio. As the top of the chart of the lines reflecting originations in 2012 and through 2015, lines begin to level out at cumulative loss rates of 10 to 12 percent. VHG after 2015 began to reflect improved performance with the lines leveling out within the 5 to 10 percent loss rate.

By far the largest component of the EPS it would be hard to substantially outgrow peers in terms of Aps over an extended period of time without growing them in terms of net interest income.

And it would be hard to outgrow peers over the long haul in terms of net interest income without outsized loan and deposit volume growth. So hopefully you will agree that a bank that can attract talent by virtue of being an employer of choice by utilizes its client experience is the primary basis by which it attracts clients and retain clients are banks that can rapidly.

Harold Carpenter: B.H.G, continues to allocate resources to the post-COVID-ventages of 2021 through the part that the 2022, as those advantages, B.H.G, believes were granted higher than the bar at Colesville and wanted and thus skewed the law's rates higher for those loans. This slide again provides more information on credit and detailed reserves of losses for both all balance sheet and all balance sheet loans. The issue is optimistic about credit at the end of the third quarter.

And reliably grow its net interest income the largest component of EPS, that's highly deposit highly valuable deposit franchise, Paul I'll stop there and we will take questions.

Certainly at this time, we will be conducting a question and answer session.

If you have any questions or comments. Please press star one on your phone at this time, we ask that while posing your question. Please pickup your handset if listening on speaker phone to provide optimum sound quality. Once again. Please press star one if you'd like to ask a question at this time.

Harold Carpenter: Typically for B.H.G., a partially 70% of the loss is incurred in the first three years of origination, but with great inflation, as was mentioned about the 2021 and the first half of 2022, losses should and has come to light soon. As a result, B.H.G, has expanded significant resources to bulk up collection activities and will be instituting in-person closings for new bars which will suspended during COVID.

So while we pull for questions.

And the first question today is coming from Steven Alexopoulos from J P. Morgan Steven Your line is live.

Hey, good morning, everyone.

Harold Carpenter: Although higher than historical losses are likely for the near term, the credit performance of the portfolio does appear to be improving pointing towards cautious optimism as we enter the fourth quarter and end of 2024. B.H.G, had another strong quarter with approximately a billion dollars in originations and are consistent with our outlook on the last quarter. As we mentioned last quarter, B.H.G, had a conservative bias coming to the third quarter, such that as they continually tighten their credit box, production in the last half of the year was expected to be lower than the first half.

Okay.

Let's start on the deposit side and specifically a deposit mix.

<unk> had very strong growth in the interest checking account right. It's over half on the average balance in that rates at $3 77.

I'll give some color is that where new customers are coming into the bankers see a migration from noninterest bearing into that account.

Is that where we should expect to see outsized growth.

Yeah, I think we will see more in the.

Money market accounts interest checking accounts I think a lot of the new strategy, the new verticals will point in class in that direction.

Harold Carpenter: The current fourth quarter loan production forecast should approximate 600 to 800 million in order to follow from the 2023 bull year guys, which is less than the quarterly production levels thus far this year. During the quarter, B.H.G, did record several one-time expenses related to the markdown of a building they anticipate selling, as well as markdowns of some software assets and other items that were related to some business lines that B.H.G, has elected to not support any longer.

Looking at our new account growth over the last call. It three plus Steve about 10% to 15% of it is in noninterest bearing.

So we're still attracting class at Nida operating accounts, but I think a lot of those sales.

Harold Carpenter: These one-time charges amounted to approximately $10 million during the third quarter. These amounts have been incorporated in B.H.G, results and outlook for 2023. Net earnings for 2023 are forecasted to $175 to $185 million, inclusive of the one-time adjustments just mentioned, and is basically consistent with the range from last year's forecast.

Of course is aimed at more products that are more aimed towards those interest checking and money market accounts.

Got it and Harold you called out the spot rate.

Total deposits, but what about this account where are you pricing relative to the $3 77 right now.

Yeah, I don't have that right now, but I would imagine that new account growth is probably in the $3 77.

Just a wild guess, Steve I would think the spot rates probably.

Call it the <unk>.

Pretty close to the 297, maybe a little north of that okay.

And then helping to offset that earning asset yields are picking up a bit you know 21 bps quarter over quarter, given where long longer term rates of move how much should we expect more of a lift in our earning asset yields coming in the fourth quarter is that picking up.

Harold Carpenter: Quickly, the useful slide detail in our finance and agile outlook for 2023, we have a bias currently toward a more conscious outlook when it comes to credit interest rates and capital. Our job is to manage the risk that faced this franchise every day, but we know that our business model remains a relationship-based, nimble, and resilient. Our management team has significant experience and has tackled economic downturns before.

Yeah, we are expecting.

Some more lift primarily through the repricing of the fixed rate loan renewals.

We've got you know like we mentioned about $100 million in construction covenants I think altogether, we're looking at somewhere close to maybe.

Call It <unk>.

Terry Turner: We have great confidence that we'll be able to manage the high quality banking franchise that our shareholders have funded expect from us and can currently handle whatever curveballs get thrown our way.

$400 million fixed rate renewals coming through this quarter.

Okay.

If we put those together you'd think NIM is flat to down slightly in the fourth quarter.

Terry Turner: And with that, I'll turn it back over to Terry. Thanks, Harold. Lauren Buffett and others have famously said manage the fundamentals and tell the story, and the stock will take care of itself. I believe that, at Pentacle, we are managing what we believe are the fundamentals, the critical variables to creating outside shareholder value. And so my goal here now is to tell the story, to crystallize extraordinarily valuable deposit franchise we've built.

Safe to say that will likely be the bottom.

Interest margin for this cycle.

That's what we're hoping for Steve.

Only hoping that it was this quarter that the bottom is when we get but our we've.

We've looked at the projections for the third or the fourth quarter several different ways under several different scenarios and it looks like we're really close okay.

And then on the expense side I appreciate all the commentary that more of the expenses are not being directed at revenue producers for support staff, but I balance the commentary that you're putting out Terry you said youre, putting out the word to accelerate the pace of new hiring rate just given the market opportunity, but there's less pressure on back office when I put those together.

Terry Turner: As an industry, we've been in the war for the last three quarters, and in the fog of war, it's easy to get confused about what's really with all just witnessed three high-profile franchises go to zero, primarily because of the two things. Number one, they're enterprise-wide risk management in my judgment, they all took extraordinary risk and two, the stickiness of their deposits. And so, the risk of management teams willing to take matters and how they use their security book matters and how they manage interest rate sensitivity matters and how they manage concentrations matters. And then how they attract and retain their deposits matters.

How should we start to think about expense growth for next year.

Just a rough range because I don't know how to put those two together.

Yeah, we're looking at the 2024 expense plan right now.

We've got a big but.

Largest increase in expenses that were hopeful too.

Cover would be our incentive costs.

65%, So we'll add 35%.

Terry Turner: Personally, I wouldn't want to be long in bank our size that stuck in the commodity trap. That means an undifferentiated franchise from a client's perspective. Because in that case, there's no ability to reliably gather deposits at a pace sufficient to sustain outside revenue and EPS growth. And no ability to retain deposits and difficult times, which again jeopardizes the reliability of their growth. But a bank that can attract talent by virtue of being an employer or choice, a bank that utilizes its client experience is the primary basis by which it attracts clients and retains clients, a bank that can rapidly and reliably grow net interest income, the largest component of EPS, that's available to deposit franchise.

The plan for next year.

We are introducing to our board and the comp committee several different ways that we think we can cover that additional cost and still produce the revenue growth that I think everybody expects us to produce so we're we're obviously not going to not going to introduce.

Our expense plan any number that is going to cause our EPS to be unduly yet. So we're looking at what our projections are next year for us and our peers.

We're likely to try to achieve some percentage growth and likely well, we'll always be trying to get into the top quartile of that group. So I know that's a lot of word salad for you Steve.

Terry Turner: Anyone who's heard me tell the pinnacle stories, heard me talk about the pinnacle philosophy that excited associates producing gauge clients and nothing enriches shareholders like engaged clients, meaning raving fans that bring more business to you and refuse to leave you in times of uncertainty. Many times when I discuss that philosophy, I try to list the proof of the workplace awards we've won, the service and brand awards we've won, the outside shareholder returns we've produced over short, medium and long term time frames.

But at the same time, we're not really ready to kind of talk about where we are on expenses Terry to challenge us to look at our expense base with a lot more diligence here this quarter as we look into 2020.

But how about if we just put together new hiring with less back office does that imply less pressure on expenses or more pressure on expenses, because obviously that allows us to produce better operating leverage.

On that particular notion for sure.

Terry Turner: But today I want to show you the power of building a great workplace of being an employer or choice. I believe most of the banks that have leading market share positions in our footprint are hemorrhaging talent. And while I can't provide a metric to prove that I do believe where the employer of choice throughout our footprint, what bank do you know that's produced a compound annual growth rate of revenue producers of 7%.

We don't intend to hire as many in the support groups next year as we've done over the last two years. So so that is an added benefit of what I want to make sure.

Is that we get on the table that we're also planning to increase our expense base next year to more of a target payout of our incentive accruals. So just don't let us forget don't forget about that Steve I think what Youre, Jason there I'll just the impact of the net hiring revenue producers that non revenue producers that ought to be a net positive.

Terry Turner: A 7% per annum increase in the number of experienced revenue producers while still producing top four tile profitability that a deposit, a valuable deposit franchise. And by virtue of the associate engagement, you're able to create a you provide clients and experience that lights them up, that engages them in such a way that they want to bring you more of their business. And they want their friends and colleagues to experience the same thing.

And.

Again, I think what <unk> tried to do is make sure everybody gets it.

Our incentives are tied to performance and so we're open to produce performance it warrants a target payout or above next year and so that in and of itself is a big increase to the incentive line, but the item year, Jason on the net impact of hiring it ought to be a net positive.

Terry Turner: Those are what the researchers are part two is promoters. At 57, according to JD power, we have the second highest net promoter score of all the top 50 banks in the United States based on assets. Number two in the country. That's pretty tall cotton.

Got it got it.

Okay, and maybe just lastly, just if I zoom out right. We look at loan to deposit growth just full year expectations for this year maybe.

Terry Turner: Of course, JD power has more consumers land. So we rely a little more on coalition Greenwich, which is more focused on businesses. According to Greenwich, our ability to create an experience that results in raven bands promoters is literally one of the best in the nation. I know no competitor in our footprint is coming close to a 79 net promoter score. And I'd be surprised if any bank in the country is exceeding a 79 net promoter score.

Maybe for you Terry as you look at the strength of your markets the pace of new hiring.

You'll see us exiting 2023, and I think entering 2024 with more momentum than what we saw in 2023 or is it about the same.

Thanks.

I would think you'd be more momentum in 'twenty four.

Hum.

You know this is Ben.

Quite a year.

Terry Turner: And of course, that begins to explain our substantial outperformance in terms of deposit growth shown here on the far right. Our net deposit growth, our ability to attract and retain deposits is wildly better than peers, both prior to the bank failures and subsequent to the bank failures. And I'd say that's available deposit franchise. I included the 2022 data in the middle not only so you can easily see the outstanding market share we took and who we took it from but so you can see the most recent data on the far right that our model continues to grow deposit market share in Nashville in 2023 at a very rapid pace so much for the law of large numbers.

Lots of concern about interest rates when you had it in lots of concerns about inflation quickly into the bank failures and boom boom boom boom. He just a lot of.

Opportunity for caution, but I would say.

Good.

Steve You you you know better than I do what all the variables are out here to figure, but it feels a lot more stable.

As I look at what our business model is today than it.

It did.

Early 'twenty three got.

Got it perfect.

Perfect. Thanks for taking my questions.

Yes.

Thank you. The next question is coming from Brett Robinson from Holiday Group Brett Your line is live.

Hey, guys. Good morning, thanks for the questions.

Wanted to talk about the kind of the normalization of credit and just you know you obviously were in the one credit to quite a few regional banks for that.

Terry Turner: What I hope I can bring to life for you is that while it is incredibly advantageous to be in large high growth markets which we are, nothing, literally nothing is more valuable than a differentiated experience that can reliably take share from the weaker competitors that dominate our markets. Think about that over 23 years in existence in Nashville, the top three banks gave up 27% share and we took nearly 21% of the market from them.

Raised net charge offs, a little bit this quarter, but wanted to just ask about the $65 million increase in classified assets. If there was anything that was.

Sort of.

More.

Normal or can you talk maybe just about that in general and then just maybe we could talk about the snick book and how big that is and how you think about that.

Yeah as far as charge offs for this quarter without the mountain express charge off.

Terry Turner: That's a valuable deposit franchise and honestly I'm not aware of a single bank in the country with that kind of deposit building franchise. And while we've been at it the longest in Nashville based on FDIC market share data for 2023 we're growing sharing virtually every market that we're in all of those listed here have positive share growth and look at this when you compare the deposit volumes we're now producing in markets like Atlanta and Washington DC to our first three years in Nashville where we now dominate you have to be blown away by how that propels sustainable growth going forward.

We'd be somewhere consistent with the prior quarters.

We think going into the fourth quarter, we don't see anything outsized currently that would warrant us thinking that charge offs are going to increase.

Mentally from that.

Where we are today.

Did that get what you were talking about are you interested in.

More information on that.

Yeah, I know that one credit kind of impacting that charge offs, but just wanted to kind of hear about the increase in classified if there was anything that was underlying there that had a commonality and then just maybe if you could give.

Terry Turner: That's a valuable deposit franchise as I've alluded to several times now to be available deposit franchise in addition to your ability to attract deposits is critical that you can retain deposits in times of crisis. And we don't need to invent metrics that we hope might be predictive of how sticky banks deposits are we can know right. I would say the best test of a bank's ability to retain clients was how well they did in that period of time leading up to immediately following the Silicon Valley bank page.

Any color on the Snick book and just.

And the characteristics of that portfolio, how much your lead.

How are you kind of run that portfolio yeah. The classifieds did did bump up on US I think the credit officers are all over that one.

Healthcare credit.

That we've banked for a while and they just believe that their metrics are not looking at where they are not performing where they need to be performed and so they downgraded it.

Terry Turner: Think about it. It was the worst bank scare since the Great Depression and it occurred in this time of frictionless transfers. It's never been easier to transfer bank balances than at this time and really that's we saw three relatively large bank failures fail precisely for that reason. But it's critical in that extreme crisis not one of our 200 largest positive left us in the month following those failures not one and the balances of those 200 total 3.9 billion at the time of the SBB failure and 3.9 billion roughly a month after that failure. It's just hard to leave a bank you love and trust and that's available deposit franchise.

That contributed to primarily the increase in classified this quarter was that one credit.

So so that that was that as far as the snick book is concerned.

Run at about 7%.

Total loans and our shared national credits.

So.

The way we approach that largely is we wont end market.

The the loans themselves and we want them to be in market.

We want them to be relevant to our business development.

Terry Turner: A further proof of the power of the franchise is that according to Greenwich over the next 6 to 12 months in our footprint. Medical is the most likely bank to earn more business and the least at risk of losing business. The most likely bank term business and the least likely of losing business for each of the three banks to dominate our footprint terms of existing positive client share. In other words for each of the three market share leaders between 17 and 22% of their clients indicate they're likely to lose business in the next 6 to 12 months.

That we can bank the principles of the business and we have traditionally done that here in Nashville and in other markets.

The one credit that charged off this quarter.

Was a little bit of an anomaly for us not only I know there's been a lot of a lot of discussion about that and about it being idiosyncratic and all of that it was also kind of unusual for us because there.

There was a bunch of banks in it and we were at the we're at the end of the line and so with that.

Terry Turner: That's a huge opportunity for us to produce outside growth given our proven ability to take their share. And because our clients engagement with us nearly 40% of our clients indicate a likelihood that we'll earn more of their business. I would say that the franchise is most likely to earn new business and least likely to lose business is a very valuable deposit franchise. And of course the ultimate goal of all that is to rapidly and reliably increase total shareholder returns over the last 10 years or total shareholder returns has substantially up for all our peers.

It's not something we normally.

I like to do so I don't think you'll see a similar event on that on both particular matters.

Hi, Brent on that thing on the.

Sort of a normalization of credit metrics I think you've probably heard me say they'll have to normalize theres no chance, we can operate at historic lows forever.

And so they'll have to normalize, but you know when you sort of.

Look in there your non performers are down during the quarter class fast Mark.

That is even after that increase will probably still be the third best in the peer group and so again.

Terry Turner: As we've grown an asset size, our PE multiple has contracted more than most of our peers, largely I suspect due to a fear of the law of large numbers. And so for us to produce that size, total shareholder returns is our PE contract we had to substantially outgrow peers in terms of EPS, which we did. But given that that interest income by far the largest component of EPS, it'd be hard to substantially outgrow peers in terms of EPS over an extended period of time without growing them in terms of that interest income.

They're gonna have to pick up normalized but it still feels really good from my perspective.

Terry Turner: And it'd be hard to outgrow peers over the long haul in terms of that interest income without outsides long and deposit volume growth. So hopefully you'll agree that a bank that can attract talent by virtue of being an employer choice, bank that utilizes its client experience as the primary basis by which it attracts clients and retains clients, a bank that can rapidly and reliably grow its net interest income.

Okay.

That's helpful guys and then maybe I just wanted to make sure I understood on the on the guidance back on the margin in the fourth quarter. It kind of seems like you've got you know.

Assuming the trend continues.

Slower upward trajectory of funding costs.

And quite a bit of assets repricing in the fourth quarter, I'm, not saying you're sandbagging in our margin guidance, but it just seems like a tender would be a little bit better are you just being cautious on that relative to how the deposit struggles for the industry this year and potentially an increase in competitiveness around deposit pricing.

Or is there something else that I'm missing.

No I don't think you're missing.

Terry Turner: The largest component of EPS, that's a highly available deposit franchise.

We do believe that we are.

Like we said, we're we're near a bottom if not at the bottom on our margin.

Operator: Paul, I'll stop there and we'll take questions. Certainly, at this time we will be conducting a question and an intercession. If you have any questions or comments, please press star one on your phone at this time. We asked about that, while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Once again, please press star one if you'd like to ask your question at this time. And please hold while we pull for questions.

We think we've got great opportunities all over repricing like you talked about.

We think the deposit book is behaving well.

We will keep our fingers crossed as to whether or not we can move the margin up.

But as we sit today.

We think we are where we are and.

We think we're gonna be in pretty good shape as we go into 2024.

Steven Alexopoulos: And the first question today is coming from Stephen Alexopoulos from JP Morgan. Stephen, your line is live. Hey, good morning everyone. So what is starting the deposit side and specifically a deposit mix? See this had very strong growth in the interest checking account. Right is over half on the average balance and that rates now 377. Can you give some color? Is that where new customers are coming into the bank or see a migration from non interest bearing into that account?

Okay, great appreciate the color guys.

Thanks, Brett.

Thank you. The next question is coming from Timur <unk> from Wells Fargo team are at your line is live.

Hi, Thanks for the question.

Keeping with that same line of comments a lot of discussion around net interest margin I'm, just wondering about net interest income and how that acts and the higher for longer environment is the expectation here that as long as the fed is higher for longer NII is accelerating the growth in NII is accelerating or.

Steven Alexopoulos: Is that where we should expect to see outsized growth? Yeah, I think we'll see more in the money market accounts, interest checking accounts. I think a lot of the new strategies, the new verticals will point clouds in that direction. Looking at our new account growth over the last call it three months, Steve, about 10 to 15% of it is in non interest bearing. So we're still attracting clients that need operating accounts, but I think a lot of the sales forces aimed at more products that are more aimed towards those interest checking and money market accounts.

Is there some offsetting dynamic that might keep that growth rate.

Or limited.

Yeah, that's right. That's a great question I think from our perspective, the way our book typically behaves.

We've got all these fixed rate loans that are going to reprice in this higher for longer kind of narrative.

But if the fed kind of keeps the lid on short term rates, that's where most of our deposit pricing will likely.

<unk> be influenced by so.

If you don't see any more rate increases than the competitive pressures will be what drives.

Steven Alexopoulos: And Harold, you called out the spot rate on total deposits, but what about this account? Where are you pricing relative to the 377 right now? Yeah, I don't have that right now, but I would imagine that new account growth is probably in the 377. Just a while, yes, Steve, I would think the spot rate is probably in the, probably pretty close to the 297, maybe a little more than that. Okay, and then helping offset that earning asset yields are picking up a bed, you know, a 21-bips quarter recorder, given where longer term rates have moved, Harold, should we expect more of a lift in our earning asset yields coming in the fourth quarter?

Kind of our deposit costs and we believe that we're really competitive develop deposit cost presently. So we don't think we've got a lot of I.

I mean, we will obviously have some increases in deposits due to competitive rate pressures, but at the same time, we don't think we've got.

Nearly the hail to get over that we've already you know.

Okay.

Okay and then.

Maybe you want to carry in the release you mentioned a couple of times more vulnerable competitors in asking your online meters to accelerate their efforts and recruiting can you maybe just talk through the competitive landscape I know you've had good success in picking up talent and market share from some of the larger banks now there are some.

Steven Alexopoulos: Is that picking up? Yeah, we are, we're expecting some more lift primarily through the repriving of the fixed rate loan rules. We got, you know, like we mentioned, about a hundred million dollars in construction coming in, I think all together, we're looking at some more close to maybe call it three or four million dollars in fixed rate loan rules coming through this quarter. Okay, so if we put those together, you think them is flat to down slightly in the fourth quarter, is it safe to say that will likely be the bottom of an interest margin for this cycle?

Asian from from regional banks in that space as well, maybe just talk through the broader competitive landscape and then if you could put some numbers around what I know, it's accelerating effort for recruiting might look like in 'twenty four.

Yeah, I think the.

Thank you for that question give me a chance to clarify here a little bit so I think from a competitive standpoint.

You know who the market share leaders are in our southeastern footprint generally.

Steven Alexopoulos: Yeah, that's what we're hoping for Steve. We're really hoping that it was this quarter that the bottom is when we hit, but we looked at the projections for the fourth quarter, several different ways under several different scenarios, and it looks like we're really close. Okay, and then on the expense side, I appreciate all the commentaries that more of the expenses are now being directed at revenue producers versus support staff, but I balance a commentary that you're putting out, Terry is that you're putting out the word to accelerate the pace of new hiring, right, just giving the market opportunity, but there's less pressure on back office.

In almost every major urban market theyre going to be dominated by three.

Three and to some extent maybe for full bags.

The Truest Wells Fargo Bank of America and regions.

And so that is that's the line of scrimmage for US Tomorrow, you know a lot of people over the years. They ask how do you compete with.

This little banker that little bank, Jeremy I don't know the answer to that goes to Atlanta Scrimmages always those are.

Steven Alexopoulos: When I put those together, how should we start to think about expense growth for next year? Could you give us just a rough range, because I don't know how to put those two together? Yeah, we're looking at the 2024 expense plan right now, and we've got a big, the largest increase in expenses that we're hopeful to cover would be our incentive calls. For 65%, so we'll add 35% into the plan for next year.

Market share leaders.

We are finding and I think I mentioned in my comments, a lot of those banks that dominate our markets or emerging talent.

Some due to integration issues, some data I think regulatory pressures.

All of those sorts of things, but if you think about those bikes are listed there most of them have a difficult landscape.

Which brings pressure in their organization a lot of them are cutting staff.

Steven Alexopoulos: We are introducing to our board in the Comf committee several different ways that we think we can cover that additional cost and still produce the revenue growth that I think everybody expects us to produce. So we're obviously not going to not going to introduce into our expense plan any number that it's going to call our EPS to be unduly hit. So we're looking at what our projections are next year for us and our peers.

A lot of them are losing stay up because of the continued rollout of tightening policies and all those kinds of things and so my belief is there we've enjoyed vulnerability among those competitors really throughout our existence, but I would say that the vulnerabilities today seem higher.

So more than the vulnerabilities that are that.

We've enjoyed through our first 23 years and so that's sort of the backdrop of what causes me to say hey, we need to be season. This opportunity I don't mean to be dramatic, but I do honestly believe that it is a once in a generation opportunity.

Steven Alexopoulos: We're likely to try to achieve some percentage growth and likely, well, we'll always be trying to get into the top four ton of that group. So I know that's a lot of word salad for you, Steve, but at the same time, we're not really ready to kind of talk about where we are on expenses, Jerry's challenge us to look at our expense base with a lot more diligence here this quarter as we look in the form into 2024.

To build a big franchise on the shoulders of that disruption.

In terms of what does that mean in terms of hiring people I think you've followed us for a while you know that.

I think over the last three years prior to 'twenty three we set a record for the new volume of revenue producers that we hired we won't do that this year.

Steven Alexopoulos: Right. But Harold, if we just put together new hiring with less back office, does that imply less pressure on expenses or more pressure on expenses because of that? Now, that'll obviously that allow us to produce better operating leverage on that particular notion for sure. We don't intend to hire as many in the support groups next year as we've done over the last two years. So that isn't that a bit of what I want to make sure is that we get on the table that we're also planning to increase our expense base next year to more of a target panel or incentive rules.

Maybe be down.

Say, 30% this year.

From previous records of revenue hires my belief is will they get back north to approach.

Those previous records, so you might be able to hire 20% more revenue producers next year than this year.

Okay.

Steven Alexopoulos: So just don't let us forget. Don't forget about that. Steve, I think on what you're chasing there on just the impact of the net hiring of revenue producers and non-revenue producers that ought to be a net positive. And again, I think what Harold's trying to do is make sure everybody gets that our incentives are tied to performance. And so we're hoping to produce performance that warrants the target payout or above next year and so that in and of itself is a big increase to the incentive line.

That's great color. Thank you for that and then just lastly for me on BHG I know in you know in recent years. There has been discussion on maybe lowering overall ownership or getting more creative in an effort to avoid some of that seasonal impact with the pizza.

Steven Alexopoulos: But the item you're chasing on the net impact of hiring it ought to be a net positive. Got it. Okay, and maybe just lastly, just if I zoom out, right, we look at loan and deposit growth just full your expectations for this year. You know, maybe for you Terry, is you look at the strength of your markets, the pace of new hiring? UCS, exiting 2023 and entering 2024 with more momentum than what we saw in 2023, or is it about the same?

Will impact now here already and embedded in kind of the capital position in the fourth quarter does that change your longer term view on partnership with BHG does that.

Maybe entice you to stick with the current structure for a longer period of time or is there still a want to maybe reduce some of the exposure.

Yes, Robert Thanks for the question I don't I don't believe seasonal impacts our view of BHG, our relationship with BHG and what our outlook is for BHG.

We still have a great partnership with them.

We meet with them routinely we understand what their strategies are now going into 2024.

Steven Alexopoulos: Thanks. I would think it may be more momentum in 2004. This has been quite a year. You know, lots of concerns about interest rates when you had it in, lots of concerns about inflation quickly into the bank fares and bang, bang, bang, bang. Boy, just a lot of opportunity for caution, but I would say, you know, you know, whether or not do what all the variables are out here to figure, but it feels a lot more stable. So, as I look, you put our business model is today, then it did in early 23. Perfect. Thanks for taking my questions. Thank you.

We're optimistic about what they can accomplish and we think they are building a very valuable franchise.

Over the short and intermediate terms that could be valuable to anyone that might need that might think that that.

Going into that market segment would be advantageous for them. So.

We're proud of what they've been able accomplish and we're optimistic about what could be coming to us next year.

Great. Thank you.

Thank you. The next question is coming from Stephen Scouten from Piper Sandler Steven Your line is live.

Yes. Thanks I appreciate the time I guess it sounds like most of the growth is going to continue to come organically from the new hires I've seen that a lot of D C. Atlanta and some of these newer markets I guess my question is any.

Brett Rabatin: The next question is coming from Brett Rabatin from Halsey Group. Brett, your line is live. Hey guys, good morning. Thanks for the questions. I wanted to talk about the normalization of credit, and just, you know, obviously, we're in the one credit that quite a few regional banks were that, you know, raised the net charge offs a little bit this quarter, but wanted just to ask about the $65 million increase in classified assets, if there was anything that was, you know, sort of more normal.

New newer markets for you guys that you might push into with.

Accelerated hiring plans and or with some of the dislocation and weakness at other banks do you think about M&A opportunities any more intensely at this point.

Yeah, I think the.

Let me take the last part first I think as it relates to always considering M&A more intensely than previously I think the answer to that is no we're not.

I think.

Brett Rabatin: Or can you talk maybe just about that in general, and then just maybe we can talk about the snake book and how big that is and how you think about that. Yeah, as far as charge offs for this quarter, without the amount expressed charge off, I think we be somewhere consistent with the prior quarters. We think going in the fourth quarter, we don't see anything outsize currently that would warn us thinking that charge offs are going to increase significantly from that where we are today.

As it relates to market extensions and so forth.

David.

I heard us talk about this over a long haul.

If you go to Memphis and draw a line up to D C and down to South, Florida, we won't be in all of the large urban markets in in that triangle there.

The obvious void as Florida.

Florida is attracted to us because it's dominated by those same players I just.

Mentioned in response to <unk> question.

And so.

Brett Rabatin: Brett, did that get what you were talking about? Are you interested in more information on that? Yeah, I know that one credit kind of impacted that charge offs, but just wanted to get in here about the increase in classified, if there was anything that was underlying there, they had a commonality, and then just maybe you could give any color on the snake book and just, you know, any characteristics of that portfolio, how much you lead.

Anyway, those are those are attractive markets.

We do not and I think you know, there's we don't set.

Set up here and say, okay, we need to find our way to Jacksonville, Florida, we need to find a way to Tampa, Florida and set out some initiatives to bring that about it occurred the same way that all our other recruiting does generally somebody in our organization will turn somebody up it says Hey, This group Brian here. These are my buddies up.

Brett Rabatin: How do you kind of run that portfolio? Yeah, the classified did both of us, I think credit officers are all over that one. It's a healthcare credit that we have banked for a while, and they just believe that their metrics are not looking where they are. They're not performing it where they need to be performing. So they've downgraded it. That contributed to primarily the increase in classified as quarter was that one credit.

Work with them they could build you a big bank.

And so you know, we'll pursue those and say if we find something that's good for them and good for US we don't feel like we have to go to.

Market extensions to produce outsized growth, we think the current hiring methodology in the existing footprint to do that but there's no doubt we do see opportunities in.

If we find the right team that can build as a big Bank. We will go next week or next month or next year. If we don't find them. That's okay too we don't have to get there we believe the current rigs.

Brett Rabatin: So that was that as far as the snake book is concerned, we're running about 7% of total loans in our shared national credit. So the way we approach that largely is we want end market, the loans themselves, we want them to be in market, we want them to be relevant to our business development such that we can thank the principles of the business and we've traditionally done that here in Nashville and in other markets.

Recruiting model in the existing footprint is going to produce outsized growth. So I hope I hit what you won't but if I had not ask again.

Now, 100% that's very helpful. I appreciate that.

And then maybe kind of hopping back to credit I mean, I know Terry you said, you, obviously expect a normalization over time and you got to Ben.

Running the bank successfully for awhile and gone through credit cycles, there seems to be a big disconnect between what people are expecting or what fears there are around credit and what banks are actually C. Can you tell us for you guys. What gives you the most confidence that that normalization won't be.

Brett Rabatin: The one credit that charged off this quarter was a little bit of an anomaly for us, not only I know there's been a lot of discussion about it, about it being idiotic and all of that. It was also kind of unusual for us because there was a bunch of banks in it and we were at the end of the line and so with that, that's not something we normally like to do so I don't think you'll see a similar event on that on both particular matters.

[laughter] catastrophic or what have you are or what some people seem to be expecting on the downside.

Yeah I think.

The principal thing is how we develop our business and so just a quick reminder of what we do is we target experienced bankers.

Somebody has seen be successful at that job or the app.

Average experience of the Big we hired 26 years and so when you're hiring people that have been at it for 26 years.

Brett Rabatin: Hey Brett, on that thing on the sort of normalization of credit metrics I think you probably heard me say they'll have to normalize there's no chance we can operate at historic loans forever and so they'll have to normalize but you know when you sort of look in there you're not performers are down during the quarter class fights my bed is even after that increase will probably still be the third best in the peer group. And so again, it's they're going to have to pick up normalize but it still feels really good from my perspective.

Handling the book of business for two and half decades. It does produce rapid growth goes generally they play book that will make it moved the book quickly, but more importantly, it produces outsized asset quality because they leave the bad credits behind because they're well familiar with what's going on with those credits and so forth and so.

Again, my belief is that.

That has accounted for the outstanding credit performance that we've had and I believe that it will continue.

Brett Rabatin: Okay, that's helpful guys and then maybe I just wanted to make sure I understood on the guidance back on the margin in the fourth quarter it kind of seems like you've got you know as soon the trend continues of slower upward trajectory of funding costs and quite a bit of assets for pricing in the fourth quarter. I'm not saying you're you're saying begging in the margin guidance but it just seems like the tenor would be a little bit better are you just being cautious on that relative to you know the deposit struggles for the industry this year and potentially an increase in competitiveness around deposit pricing or is there something else that I'm missing.

To do that you know some people can go back and say well how did you do in the great recession, you have outsized losses, I think I'd say two things on that statement for whatever it's worth is a little more than you asked but I just I don't want to comment on it when you look at the if you call the great recession and the period from first quarter 2008.

So the fourth quarter of 2012 in that period of time.

We lost a little less than 5%.

Horrible number, but all our major competitors.

Banks that we've talked about here regions.

First Horizon Bank of America Suntrust at the time lost anywhere from two to three times that level and so it wasn't outperformance, although it was a bad number.

Brett Rabatin: I don't think you're missing. We do believe that we're you know like we said we're near a bottom is not at the bottom on our margin. We think we've got great opportunities on low repricing like you talked about we think the deposit book is behaving well we will keep our fingers crossed as to where and how we can move the margin up. But as we said today you know we think we are where we are and we think we're going to be in pretty good shape as we're going to twenty twenty more. Okay great appreciate the color guys.

Timur Braziler: Thanks Briss.

And so we saw what made it bad we had just completed two acquisitions immediately prior to going into the great recession, our NAV for models didn't produce much in the way of commercial real estate, but the acquisitions that we've made left us with a concentration in residential real estate at the worst possible time to have one we don't have.

That concentration today and so the combination of the model and the differences in our company today versus prior cycles are the principal reasons I feel good about where we are.

Timur Braziler: Thank you the next question is coming from Timor Brizziller from Wells Fargo Timor your line is live. Hi thanks for the question just keeping with that same line of comments a lot of discussion around net interest margin I'm just wondering about net interest income and how that acts in a higher for longer environment is the expectation here that as long as the Fed is higher for longer. And I I is accelerating the growth in that I is accelerating or is there some offsetting dynamic that might keep that growth rate.

Perfect and helpful and maybe one just last clarifying question here you just mentioned in consumer real estate, which you guys don't have a lot of this time around which is great, but I did notice that you.

Took the reserves up there to like $1 48.

As a percentage of those loans from 127, Harold was there anything meaningful there that drove that increase I think there's recoveries in that portfolio year to date. So we're just kind of surprised to see it tick up there.

Yeah, I think the Moody's model is what is driving that increase.

Outlook for those borrowers.

Timur Braziler: Yes, that's a great question. I think from our perspective, the way our book typically behaves is we've got all these fixed rate loans that are going to reprise in this higher for longer kind of narrative, but it's a fed kind of keeps the lid on short term rates. That's where most of our deposit pricing will likely be influenced by. So if you don't see any more rate increases, then the competitive pressures will be what drives us kind of our deposit costs, and we believe that we're really competitive on the deposit cost presently.

They may require that small percentage increase.

Got it but nothing specific that youre seeing there right now that gives you any real asset.

The.

No not really I don't think.

We've seen anything of any costs left in that book.

We certainly I don't think we anticipate any losses in that book.

Great. Thanks, so much for the color guys I appreciate it.

Alright, Thanks Steven.

Thank you. The next question is coming from Brandon King from tourists Securities Brendan Your line of life.

Timur Braziler: So we don't think we've got a lot of, I mean, we'll obviously have some increases in deposits due to competitive rate pressures, but at the same time, we don't think we've got nearly the hill to get over that we've already, you know, talked.

Hey, good morning.

Okay.

So just wanted to it's a good idea or thoughts on the securities portfolio. I know there was some more restructuring in quarter. Just what are your plans there for her.

It should shrink going forward.

Terry Turner: Okay, and then maybe one for Terry in the release, you mentioned a couple of times, more vulnerable competitors and asking your line meters to accelerate their efforts and recruiting. Can you maybe just talk through the competitive landscape? I know you've had good success in picking off talent and market share from some of the larger banks. Now there's some dislocation from from regional banks in that space as well. Maybe just talk through the broader competitive landscape.

Yeah, I think we're we're about where we need to be on securities.

I don't we don't have any imminent plans to do anymore.

We will probably hold right here and see see what happens with intermediate rates here.

I think we've gotten.

The segments on the Securities book that we were looking to get so we're gonna hang on right here and see how it goes from here.

Terry Turner: And then if you could put some numbers around what a nox accelerating effort for recruiting might look like in 24. Yeah, I think the thank you, thank you question, give me a chance to clarify here a little bit. So I think from a competitive standpoint, you know who the market share leaders are in our south eastern footprint generally in almost every major urban market, they're going to be dominated by three and to some extent, maybe four four banks.

Got it.

And then in theory I, just wanted to take another angle to players to accelerate hiring.

Could you just talk more about the type of talent, that's available and kind of how that compares to maybe a more normalized environment.

Yeah, I think the so the type of talent. That's available are the biggest category of revenue producers for us as well.

We use the term financial advisors most of the industry calls and relationship managers, but what we're speaking of our bankers who control.

Our book of business, a book of class and the focus there would be.

Terry Turner: The truth is, well, Fargo, Bank of America and regions. And so that is that's the line of scrimmage for us tomorrow, you know, a lot of people over the years ask how you compete with this little bank or that little bank, generally I don't know the answer to cause the line of scrimmages always those market share leaders. We are finding and I think I mentioned in my comments a lot of those banks that dominate our market are emerging talent, some due to integration issues, some due to I think regulatory pressures, all those sorts of things.

What.

Wealth management advisers.

Mall business advisors and middle market advisers, so that's really where most of that hiring.

Should occur.

The other categories of revenue producers, we've been pretty successful in other wealth advisory.

Terry Turner: But if you think about those banks, I listed there most of them have a difficult landscape, which brings pressure in their organization, a lot of them are cutting staff, a lot of them are losing staff because of the continued road out of Titan policies and all those kinds of things. And so my belief is that we've enjoyed vulnerability among those competitors really throughout our existence, but I would say that the vulnerabilities today seem higher, seem more than the vulnerabilities that we've enjoyed through our first 23 years.

And when I say that I'm speaking of both.

<unk> Trust administrators.

And so forth. So those are sort of secondary categories of revenue producers, but.

You know the the largest segment is just what you might think of as an old fashion reliable efficient ship manager that handles a large book of banking business.

Got it and I answered, what you're asking Brandon Yeah, Yeah, and I just wanted to get a sense of are.

Are you seeing kind of maybe.

A higher level of talent, that's more available now compared to you know couple of years ago.

I think.

<unk>.

It would be hard for me to say that the the talon itself would be at a higher level than the talent that we've hired.

Terry Turner: And so that's sort of the backdrop of what causes me to say we need to be seasoned this opportunity. I don't need to be dramatic, but I do honestly believe that it is a once in a generation opportunity to build a big franchise on the shoulders of that disruption in terms of what does that mean in terms of hiring people. I think you've followed us a while, you know that I think over the last three years prior to 23, we set a record for the new volume of revenue producers that we hired.

But I would say that the we have an expectation that the volume that's available is more than it's been over the last 12 to 24 months.

Okay.

That's fair that's fair.

And then just lastly, Harold if you could give us a sense of what you're thinking about as far as the run off of it there'll be advances in royalty and broker deposits and wholesale funding yeah. That's like tell me advances I think have longer terms.

Terry Turner: We won't do that this year. You know, maybe be down, say 30% this year from previous records of revenue hires, my belief is we'll take it back north to approach those previous records. So you might be able to hire 20% more revenue producers next year than this year. That's great color. Thank you for that.

I don't think they'll be running off very much here until next year.

Broker deposits I think we have some meaningful deposits that are coming up for renewal.

In the first quarter of next year, Brandon and so right now we intend to just.

Pay those off in and around our core funding growth to replace it.

Got it got it and do you know do you have the amount on hand, what's up for renewal in the first quarter.

I think it's about 300 million something like that three or 400.

Terry Turner: And then just lastly for me on BHG, I know in recent years there's been discussion on maybe lowering overall ownership or getting more creative in an effort to avoid some of that Cecil impact. With the Cecil impact now here already and embedded in kind of the capital position in the fourth quarter, does that change your longer term view on partnership with BHG? Does that maybe entice you to stick with the current structure for a longer period of time or is there still a want to maybe reduce some of the exposure?

We reduced our wholesale deposits some this quarter.

And we intend to do it some in the fourth quarter as well, but I think there was a meaningful number that comes up in the in the first quarter.

Got it.

For taking my questions.

Thanks, Brian Thanks Brendan.

Thank you. The next question is coming from Matt Olney from Stephens. Your line is live.

Hey, Thanks, good morning, everybody I'm on.

On that last point Harold on the broker deposits.

Coming up for renewal next year any color on the cost of those deposits as compared to your more more recent incremental cost of core deposits that you could potentially replace that with.

Terry Turner: Yes, very thanks for the question. I don't believe Cecil impacts our view of BHG, our relationship with BHG and what our outlook is for BHG. We still have a great partnership with them. We meet with them routinely. We understand what their strategies are now going into 2024. We're optimistic about what they can accomplish and we think they're building a very valuable franchise over the short and intermediate terms that could be valuable to anyone that might think that going into that market segment would be advantageous for them. So we're proud of what they've been able to accomplish and we're optimistic about what could be coming to us next year. Great, thank you.

Yeah, I think those deposits were acquired right around the first quarter right around.

Our silicon Valley at signature.

I think they were probably in the call it that.

Mid force somewhere in that.

Okay.

And how does that compare to the incremental deposit cost for the bank.

Well right now new accounts are coming in at around three and a half.

And a weighted average rate so there ought to be some pick up there.

Just based on that.

<unk>.

So.

Okay.

And then you mentioned earlier about the the pressure on the non interest bearing deposits has has slowed quite a bit any other data points. You can provide about what you saw maybe later in the quarter or the first few weeks of this quarter and then as you talk to customers what are your expectations for that balance from here.

Stephen Scouten: Thank you. The next question is coming from Stephen Schezzen from Piper Sander. Stephen, your line is live. Yes, thanks. Appreciate the time. I guess it sounds like most of the growth is going to continue to come organically from the new hires. I assume that a lot of DC Atlanta, some of these newer markets.

Yeah, we think there's going to be some drift downward, but largely by about call. It the middle of July the end of July we started to see a stabilization in those numbers every day.

Terry Turner: Guess my question is, any newer markets for you guys that you might push into with the accelerated hiring plans and or with some of the dislocation and weakness of other banks do you think about M&A opportunities anymore intensely at this point? Yeah, I think let me take the last part first. I think it relates to all we consider in M&A more intensely than previously. I think the answer to that is no or not.

So we've been hanging in there now for a while.

And so hopefully hopefully that will continue through the end of the year, we typically get a buildup in balances in the fourth quarter.

So we're keeping our fingers crossed on all of that but so we are we might be planning for some decreases but we're hopeful for more flattish going into the fourth quarter.

Okay. That's helpful. And then just lastly, just a cleanup on the BHG commentary I think you mentioned some adjustments that were made mark out of a building in some software.

Terry Turner: I think as it relates to market extensions and so forth, Stephen, you heard us talk about this over a long haul. If you go to Memphis and draw line up to DC and down to South Florida, we want to be in all the large urban markets in that triangle there. The obvious void is Florida. Florida's attracted to us because it's dominated by those same players. I just mentioned in response to the mayor's question and so anyway, those are attracted markets.

I think you said the impact was around $10 million did I get that right now how much had been accrued for so far because the third quarter and how much could we see in the fourth quarter.

Yeah, I think they're done with respect to those.

Those two issues are they.

They are exited there call it there.

Not all of it which is there there are merchant.

Bob.

Financing business, they decided to get out of it I think that was about a $4 million charge and I wrote down a building for about $6 million. So that was an accrual where there theyre putting that building on the market hope to sell it here over the next couple of quarters.

Terry Turner: We do not and I think you know there's we don't set up here in South Dakota. We need to find our way to Jacksonville, Florida. We need to find our way to Tampa, Florida and set out some initiative to bring that about. It occurs the same way that all our other recruiting does. Generally, somebody in our organization will turn somebody up. It says, hey, this group right here, these are my buddies.

But.

For those two situations, they're done they feel like they've got adequate reserves in place for those.

And with respect to BHG is repositioning examples like that any more are there any more items, where there could be additional impairments or events like like what we just saw.

Terry Turner: I've worked with them. They could build you a big bank and so, you know, we'll pursue those and see if we find something that's good for them and good for us. We don't feel like we have to go to do any market extensions to produce outside's growth. We think the current hiring methodology and the existing footprint will do that but there's no doubt we do see opportunities and you know if we find the right team that can build us a big bank, we'll go next week or next month or next year.

Terry Turner: If we don't find them, that's okay too. We don't have to get there. We believe the current recruiting model and the existing footprint is going to produce outside's growth. So I hope I've hit it what you want but if I have[inaudible] No, 100 percent. That's very helpful, Terry. Appreciate that.

Yeah, I think I think DHT he's taken a much more diligent review of all of our products.

I would imagine that going into 2024 there'll be keenly focused.

Our core lending products.

The securitization network and those two those two products because they spent quite a bit of effort.

With some ancillary businesses that I think they're looking at you know whether or not they want to continue to invest in.

Okay.

Hey, guys.

Thanks, Matt.

Terry Turner: And then maybe kind of hopping back to credit. I mean, I know Terry, you said you obviously expect some normalization over time and you guys have been running the banks successfully for a while and going through credit cycles. There seems to be a big disconnect between what people are expecting or what fears there are around credit and what banks are actually seeing. Can you tell us for you guys what gives you the most confidence that that normalization won't be, you know, catastrophic or what has[inaudible] work to do and they're going to have a lot of work to do and they're going to have a lot of work to do and they're going[inaudible] Yeah, I think the movie's model is what is driving that increase and the outlook for those borrowers may may require that small percentage increase.

Thank you. The next question is coming from Katherine Miller from K P. W. Catherine Your line is live.

Thanks, Al what follow up on D C.

I just think it's just a big picture question on D C.

How are you thinking preliminarily about.

Our earnings growth to D C into 'twenty four it feels like we've got.

And a lot of moving pieces, but it feels like we've got potentially credit cost improving once they get through use of losses in this tranche from the 21 countries.

But then you've got the impact of pizza on providing at 9% and maybe a little bit of a softer gain on sale margin.

An area, we can still see.

Stable earnings into next year or potentially could there be downside.

Yeah I think.

We'll be looking at.

Probably not.

Not trying to be cute here, a more boring BHG and going into 2024, and I think part of that is because they're going to be focused on their core businesses and less on some of these ancillary businesses are that they've been investing in over time, so, but youre right Theres a lot of puts and takes here.

But I think their plan is to generate some growth next year into 2024 and in spite of whatever headwinds they might have regarding cecil.

Where the rate curve is what happened.

And is that the difference in the gain on sale margin.

Queen the placements to banks versus the places to potential investors is that difference.

Large enough to make a big difference in the revenue outlook.

I think they will plan on a law of stronger allocation to the bank network next year.

Now keep in mind those spreads are all point in time spreads. So those those transactions. Our current every day and that's the spread le plaque.

The on balance sheet spreads are a culmination of three years of buildup. So there's historical spreads built into that which were our two and three years ago than they are today. So there is a weighted average kind of process on both of those spreads so but I do think as far as to your question.

On new production are there likely to allocate more to the bank network.

Where they get the gain on sale tree.

Great. Thanks for your comment about that being less that was more of a just a fourth quarter comment versus the strategy to 'twenty four.

Yeah, I think so I think what they want to do is try to build some inventories going into 2024.

And then be in a position to kind of make sure 2024 comes out where they wanted to come out.

Okay great.

And then circling back to the conversation of NII growth.

It seems like you still have a fairly positive outlook for just balance sheet growth. This year and typically you were able to have EPS growth target because you grow revenue.

As we think about this next year with revenue growth yeah. So doesn't it feel better than your peers, probably moderating just given the rate environment. We're in can you help us think about just the <unk>.

So now that you have with actually generating positive operating leverage growing expenses at a slower pace than your revenue growth as a way to have EPS targets is that something that you feel like you would be able to do in this scenario where revenue growth comes in lower than expected.

Yeah, I think I think we'll have a keener eye on operating leverage going into 2024.

Terry Turner: Got it, but nothing specific that you're seeing there right now that that gives you any real outside. No, not really. I don't think we've seen anything of any consequence in that book. We certainly I don't think we anticipate any losses in that book. Great. Thanks so much for the color guys. Appreciate it. All right. Thanks, dude. Thank you.

I think what we've got to do is positioned the firm in a spot to where revenue growth whatever that number might be.

That our expense growth is within that range.

We'll have to we'll have to sharpen our pencils pretty hard this year.

To see that that happens.

But.

As it sits today, that's kind of where were.

Harold Carpenter: The next question is coming from Brandon King from Truist Securities. Brandon, your line is live. Hey, good morning. Hey, Brandon. So just wanted to get idea of thoughts on the securities portfolio. There was some more restructuring in quarter. Just what are your plans there for how that should turn going forward. Yeah, I think we're about where we need to be on securities. I don't we don't have any imminent plans to do anymore.

We're pre positioning all the budgetary and the planners.

That are working and matter of fact today on how to get a good 2024 plan as Terry said that warrants and incentive.

And are set up with call it 100% of target.

Catherine I think.

You know this but just.

To make sure everybody gets it.

The focus of our company has been and continues to be to be a top quartile performer.

Harold Carpenter: We will probably hold right here and see see what happens with intermediate rates here. I think we've gotten the segments of the securities book that we were looking to get. So we're going to hang on right here and see see how it goes from here. Got it.

In terms of revenue and earnings growth and so EPS growth and so that that hasn't changed at all that'll continue to be the case and I think to Harold's point.

It's our intent and our belief that we'll be able to play on that does that even in the base of a meaningful pick up to the incentive expense because as you know we are currently accruing at 65%.

Brandon King: And then in theory, just wanted to take another angle to plan to accelerate hiring. Could you just talk more about the type of talent that's available and kind of how that compares so, you know, maybe more normalized environment. Yeah, I think the so the type of talent that's available are the biggest category of revenue producers for us is. We use the term financial advisors, most of the industry calls on relationship managers, but what we're speaking of are bankers who control a book of business, a book of clients and the focus there would be.

And I'm hopeful that we'll be accruing at a 100% or north next year. So anyway that give you some sense of what our outlook and believes it is yeah.

Brandon King: What wealth management advisors, small business advisors and middle market advisors, so that's really where most of that hiring should occur. The other categories of revenue producers, we've been pretty successful in other wealth advisory. And when I say that, I'm speaking about brokers, trusted administrators and so forth. So those are sort of secondary categories of revenue producers. But, you know, the largest segment is just what you might think of as an old fashioned relationship manager that handles a large book of banking business.

Yeah.

And I don't mean this to be a later question, but just kind of thinking about your peers and think about EPS growth in this year.

Most of the street is forecasting for EPS to be down for most of your peers into next year and so.

Even if you are the top quartile and that's flat EPS growth or even down EPS granted it's still better than peers, but still flat to down is that a scenario that you can still have a full payout of incentive comp or do you feel like you hold yourself to a higher standard where you might need to fill kind of adjust to that.

P S target that's appropriate per protocol.

Yeah.

Thank you for that that's a good question I think but.

I would say is if we were to do what you just described there and just find a way to say okay. All we got to do is get about 75% of peers that wouldnt take much earnings growth and that would be about three years of flat earnings growth EPS growth four vertical if that were to be the case and you can be sure of that.

It is not my target.

So at any rate I guess, the Ted glad to your question is that something that could happen I suppose it could happen, but I don't think you ought to expect it will happen.

Brandon King: Right. What you're asking Brandon. Yeah, and just want to do a sense of, you know, are you seeing kind of maybe. A higher level of talent that's more available now compared to, you know, a couple of years ago. I think. It would be hard for me to say that the talent itself would be at a higher level than the talent that we've hired, but I would say that we have an expectation that the volume that's available is more than it's been over the last 12 to 24 months. Okay, now that's fair, that's fair.

Great. Thanks for the clarity appreciate it.

Alright.

Thank you. The next question is coming from Brody Preston from UBS Brody Your line is live.

Hey, good morning, everyone.

Hey, Rod Roderick.

Harold I just wanted to follow up on the deposit costs. I think you said the blended rate is coming on at three and a half is that that's inclusive of the noninterest bearing correct.

Yes, yeah that would include noninterest bearing on now this is just new accounts so.

Right.

So that's right.

Harold Carpenter: And then just lastly, Harold, if you could give us a sense of what you're thinking about as far as the runoff of FHLB advances and we're often in broker deposits and wholesale funding. Yeah, FHLB advances, I think have lower terms. I don't think they'll be running off very much here until next year, broker deposits, I think we have some meaningful deposits that are coming up for renewal in the first quarter of next year, Brandon.

So based on the commentary I think you said, 10% to 15% is noninterest bearing them earlier on the call. So that implies about like an interest bearing cost on new money at about four is that accurate.

Harold Carpenter: And so right now we intend to just pay those off and rely on our core funding growth to replace it. Got it. And do you know, do you have the amount on hand of what's up for renewal in the first quarter? I think it's about 300 million something like that, 300 or 400. We reduced our wholesale deposit sum this quarter. And we intend to do it sum in the fourth quarter as well, but I think there's a meaningful number that comes up in the in the first quarter. Got it. Thanks for taking my questions. Thank you, Brandon. Thanks, Brandon.

Yeah, that's probably fair.

C D's are built into that so yeah.

Okay. So it is that I guess on the interest bearing deposit cost slide the spot rate is that where we should expect that to trend maybe over the next couple of quarters.

I don't think you'll get that high.

I think new account growth.

The volumes are there meaningful to us, but they're not there.

Not what generates a lot of the bulk of the deposit growth.

So the net deposit growth.

Core deposits was $826 million are probably new account growth was maybe half of that something like that.

Okay.

Alright, and I also just on the loan side I think you said you had about 300 to 400 million come and do for fixed rate loans next quarter is that a fairly consistent level that we should be thinking about through on a quarterly basis through 2024.

Matthew Olney: Thank you. The next question is coming from Matt Olney from Stevens. Matt, your line is live. Hey, thanks. Good morning, everybody.

I was trying to do the math in my head because I've got about 6 billion coming up for renewal over the next two years and its pretty evenly dispersed weighted more towards the near term.

Harold Carpenter: On that last point, Harold on the broker deposits, coming up for renewal next year, any color on the cost of those deposits as compared to your more more recent incremental cost of quarter deposits that you could potentially replace that with. Yeah, I think those deposits were acquired right around the first quarter, right around Silicon Valley and signature. I think they were probably in the call it the mid the worst somewhere in that.

So whatever that number comes out to be a.

Probably with with the CRA renewals.

Yeah, it's probably similar with them.

750 million something like that in the near term.

In the quarter.

Okay, Okay cool.

And then just on the VA. She I appreciate the commentary on some of the puts and takes there you mentioned that they had a building that they were planning on selling that they wrote down.

Harold Carpenter: And how's that compared to the incremental deposit cost for the bank? Well, right now, new accounts are coming in around three and a half in a weighted average rate. So there ought to be some pick up there. Just based on that.

I don't know if you've got this granular with them or not but do you happen to know kind of what percentage of the write down was I'm, assuming that that was like an office building or something that they no longer need.

Uh huh.

My body language.

Yes.

It's down in South, Florida, So I think that's about the right now.

Harold Carpenter: Okay. And then you mentioned earlier about the pressure on the non-interest parent's deposits has has slowed quite a bit. Any of the data points you can provide about what you saw maybe later in the quarter or the first few weeks of this quarter and then as you talk to customers, what are your expectations for that balance from here? Yeah, we think there's going to be some drift downward, but largely by about the call of the middle of July, the end of July, we started seeing stabilization those numbers every day.

You said they bought it for what.

20, something million I want to say it was about a 24 number.

But don't okay.

Okay.

And then I think you said you had 7% of the loans, where we're snacks do you happen to know of that what.

What are the lead underwriter on.

The snakes that where the lead underwriter on yes, Sir.

So those are all where the other bank as the lead underwriter on the snakes, we've got about.

Harold Carpenter: So we've been hanging in there now for a while. And so hopefully hopefully that will continue through the end of the year. We typically get a buildup and balances in the fourth quarter. So we're keeping our fingers crossed on all that.

Bill you had before and participations that we sold.

But none of those are in the snick category.

Okay. Okay. So the snake exposure is all but 7% is just all <unk>.

Harold Carpenter: So we may be planning for some decreases, but hopefully we're more flatish going into the fourth quarter, and so forth. Okay, that's helpful.

<unk> the other banks it'll lead underwriters on.

That's right and you know how all that works.

Harold Carpenter: And then just last legist to clean up on the BHG commentary. I think you mentioned some adjustments that were made. Mark have a building and some software. I think you said the impact was around $10 million. Did I get that right? Now how much has been accrued for so far to the third quarter and how much could we see in the fourth quarter? Yeah, I think they're done with respect to those, those two issues.

In order for them to buy our own so we got to buy their loans are there's a lot of reciprocity in this process and.

And right right now I'm run at about two 2 billion or $2 3 billion in and acquired.

Participations, a second car.

Snakes.

Okay.

Yes.

And then I did just want to follow up you know this isn't really a follow up for this call, but I think it's been asked before.

Harold Carpenter: They they exited their call it their knowledge, which is their their merchant financing business. They decided to get out of it. I think that was about a $4 million charge and they wrote down a building for about six million. So that wasn't a cruel where they're putting that building on the market. Hope to sell it here over the next couple of quarters. But for those two situations, they're done. They feel like they've got adequate reserves in place for those.

In terms of long term view on.

Succession planning and you know I think you guys have built a pretty unique unique model, which you know is attractive but also you know might be challenging for another bank to kind of maintain if they were to try to.

By you guys, especially you know just just given the the independent culture that that you have I mean, how do you. How do you think about you know long term kind of the growth path for pinnacle succession planning and you know maybe partnering with another bank.

Harold Carpenter: And with respect to the BHG's repositioning, you know, examples like that. Any more, are there any more items where there could be additional impairments or events like what we just saw? Yeah, I think I think BHG has taken a much more diligent review of all their products that I would imagine that going into 2024, they'll be keenly focused on their core lending products, the securitization network and those two products because they spent quite a bit of effort with some ancillary businesses that I think they're looking at. You know, whether or not they want to continue to invest.

Yeah I think.

The board understands it takes seriously its responsibility for succession planning are they review succession plans at least on an annual basis.

I think our succession planning here would probably resemble most peoples.

Most of the when I say, most people's most banks our succession planning. They are first of all you got to plan on two axes. What do you do long term succession and what are you doing in the bad debt or other key members get run over this afternoon. So kind of a long term plan emergency plans I have both.

In the case of the long term.

Harold Carpenter: Okay. Thank you, guys. Thank you.

Its action plans.

You they consider really three or four different variables for how you handle succession of course the.

Catherine Mealor: The next question is coming from Catherine Miller from KBW. Catherine, your line is live. Thanks. One follow-up on BHG. I guess maybe just a big picture question on BHG is, how are you thinking preliminarily about earnings growth in BHG into 24? It feels like we've got. There are a lot of moving pieces, but it feels like we've got potentially credit cost improving once we get through the losses in the ENF tranche from the 21 ventages.

One that most people are interested in is internal candidates and we have a number of high potential candidates that we continue to work with and give expanded responsibilities to in.

Catherine Mealor: But then you've got the impact of seats on providing it 9% and maybe a little bit of a softer down sale margin. So this is scenario we can still see stable earnings into next year, or potentially could there be downsides?

So forth to see how they develop and.

Determine their capabilities over time, we have candidates that are outside the firm that we have talked to and continue to talk to from time to time that have brought both in interest in our capability to come in and work with us.

And and moved the company forward and then of course, you know we can can and do consider a full range of companies that we could acquire.

Catherine Mealor: Yeah, I think we'll be looking at probably, and I'm not trying to be cute here, or more boring BHG going into 2024. And I think part of that is because they're going to be focused on their core businesses and less on some of these ancillary businesses that they've been investing in over time. So, but you're right. There's a lot of puts and takes here. But I think their plan is to generate some growth next year in the 2024 in spite of whatever headwinds they might have regarding CSO or, you know, where the rate curve is.

To pick up talent and might be more likely I'm always where there's a like mindedness.

Suitable talent there. So you know the board considers all those variables and I think Brody.

I don't know, probably a year ago or more we talked through.

Some grants that were issued.

To ensure that existing management stays in place until succession plans.

Catherine Mealor: Whatever. It is the difference in the gain on sale margin between the placements to banks versus the places to institutional investors. Is that difference large enough to make a big difference in the revenue outlook? The bank, the on balance sheet spreads are a culmination of three years of build up. So there's historical spreads built into that, which were higher two and three years ago than they are today. So there's a weighted average kind of process on those on those spreads.

Our set and so.

Yeah, you know my belief is the board's active and has any number of options for how the succession would would would work is much like it was a basketball player you know fast Bryan you feel all the lines need to open man I think that's really what's the board's view is they will look at all the options and make the best light when it's done.

To make one.

Got it I really appreciate that that answer Terry I guess, maybe if I could just sneak one more in for Harold I forgot to ask you Harold D. Do you happen to have what the reserve on the on the office portfolio is.

It's about 80 basis points somewhere in that neighborhood.

It didn't change much from the prior quarter.

So that's where we are.

Catherine Mealor: So, but I do think as far as to your question on new production, they're likely to allocate more to the bank network, where they get the gain on sale tree. Greg, you see your comment about that being less. That was more of just a fourth quarter comment versus a strategy into 24. Yeah, thanks. I think what they want to do is try to build some inventory going into 2024. And then be in position to kind of make sure 2024 comes out where they want it to come out.

Awesome. Thank you very much I appreciate it everyone.

Right.

Thank you and the next question is coming from Brian Martin from Janney.

Brian Your line is life, Hey, guys. Good morning, I'll make it short here just on the margin outlook Harold It sounds as though if you're if we're at the bottom here. The those loans you talked about repricing the fixed rate loans, and then just kind of that whole the outlook on deposits remaining favorably.

You know I guess should see the margin trend higher as we get into 2024, you know assuming this higher for longer environment is that in general how you're thinking about the margin here in the coming quarters.

Catherine Mealor: Okay, great. And then circling back to the conversation of NII growth is it seems like you still have a fairly positive outlook for just balance sheet growth this year. And typically you're able to hit EPS growth target because you grow revenue so fast. And so as we think about this next year with revenue growth, you know, still better than it, still better than your peers, but probably moderating just given the great environment.

I think we've got a lot more of a bias towards Oh, probably a margin that's going to accrete up.

I feel the same kind of pressure to run down as we've had over the last couple of quarters for sure.

Gotcha, Okay, Alright, and then just on the fee income.

Catherine Mealor: Can you help us think about just the optionality you have with actually generating positive operating leverage growing expenses at a slower pace than your revenue growth as a way to hit EPS targets. Is that something that you feel like you would be able to do in the scenario where revenue growth comes in lower than expected? Yeah, I think I think we'll have a keener on operating leverage going into 2024. I think what we've got to do is position the firm in a spot to where revenue growth, whatever that number might be that our expense growth is within that range.

As far as the kind of big picture accident DHT commentary, you've already given just he.

As far as the growth you've seen this year kind of that mid single digit mid to high single digit rate does that feel like a sustainable level. I know you talked about the solar piece this quarter being kind of maybe not one time in nature of business sounded pretty optimistic about that that business going forward as well.

Trying to think about you know how how fee income looks here what's sustainable.

Yeah, I mean, what we wanted to make sure is that people understand that it's gonna be a chopping a lot item and it has been a choppy line item for the last.

Several years.

Catherine Mealor: We'll have to we'll have to sharpen our pencils pretty hard this year to see that that happens. But as I said today, that's kind of where we're we're pre-positioning all the budgetors and the planners that are working. And matter of fact today on how to get a good 2024 plan as Terry said their warrants and incentive, you know, an incentive to grow at 100% of target. Yes, and I think you know this, but just to make sure everybody gets it, you know what the focus of our company has been and continues to be to be a top quartile performer in terms of revenue and earnings growth and so EPS growth.

You know, it's kind of a recurring nonrecurring kind of thing.

But we fully intend to support the solar business I think we've got several projects that we're looking at currently.

But.

The difficulty is trying to forecast when those projects close.

And when they get the necessary regulatory approvals. So so we're we're going to continue to invest in that product like I said, we've invested in several industry veterans there that came from some of the large cap franchises.

And we like our prospects so.

Oh that along with our other equity investments that we've got.

We still feel pretty good about the decisions we've made on all those fronts and what opportunities that they present us.

Catherine Mealor: And so that that hadn't changed at all. That'll continue to be the case. And I think Harold's point. It's our intent and our belief that we're building a plan that does that even in the face of a meaningful pick up to the incentive expense because is you know we're currently accruing at 65% and hopeful that we'll be accruing at 100% or north next year. So anyway, that gives you some sense of what our outlook and belief.

So kind of that core I guess youre, calling it kind of the core fee income inclusive of that the equity gains but exclusive of DHT is still you know soon.

Including some of the benefits you expect to get from the seller that mid to high single digits still feels pretty sustainable as you look forward here at least in the near term.

I think that's accurate Brian Okay, and then just lastly on the on the reserves I guess your outlook, maybe I don't you you Harold or Terry just with the normalization in credit if you do see charge offs or you know npa's tick up a bit here is there any outlook for a change in building. The reserve. Some you know given with the outlet.

Catherine Mealor: And I don't mean this to be a load of questions, but just kind of thinking about your peers and think about EPS growth in this year. You know, most of the three to forecasting for EPS to be down, you know, for most of your peers into next year. And so, even if you're the top quartile, and that's flat EPS growth or even down EPS growth, still better than peers, but still flat to down, is that a scenario that you can still have a full payout of incentive comp?

It looks like I know fourth quarter is still sounds pretty pretty strong, but just as you get into next year should we be thinking about things.

Seeing some reserve builders.

Current level were at more likely sustainable.

Yeah, right now, we don't anticipate any big buildup in AR reserves coming in the fourth quarter.

When looking at the credit pipeline and it seems pretty solid at this point.

Catherine Mealor: Or do you feel like you hold yourself to a higher standard where you might need to still kind of adjust to that to hit an EPS target that's appropriate for Pinnacle? Yeah, thank you for that. That's a good question. I think what I would say is if we were to do what you just described there and just find our way to say, okay, all we gotta do is get about 75 percent of peers, that wouldn't take much earnings growth and that would be about three years of flat earnings growth, EPS growth for Pinnacle, if that were to be the case.

Who knows what will happen going into 2024, but right now we feel pretty comfortable about where we are and what our charge off experience has been.

Here over the last few years.

Gotcha, Okay perfect. That's all for me thanks, guys.

Thanks, Bob.

Thank you there were no other questions in queue. At this time. This does conclude today's conference you may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.

Catherine Mealor: And you can be sure that it's not my target. So, at E-rate, I guess the Ted Glantzier question is that something that could happen, I suppose it could happen, but I don't think you ought to expect it will happen.

Catherine Mealor: Okay, great. Thanks for the clarity. Appreciate it.

Operator: All right. Thank you.

Brody Preston: The next question is coming from Brody Preston from UBS. Brody, your line is live. Hey, good morning, everyone. Hey, Harold, I just wanted to follow up on the deposit cost. I think you said the blended rate is coming on at three and a half. Is that that's inclusive of the non-interest bearing, correct? Yes. Yeah, that would include not interest bearing on, now this is just new accounts. Right. So that's right. So just based on the commentary, I think he said 10 to 15 percent is non-interest bearing earlier on the call.

Brody Preston: So it implies about like an interest bearing cost on new money at about four. Is that accurate? Yeah, that's probably fair. CDs are built into that. So yeah. Okay. So is that, I guess, on the interest bearing deposit cost live, the spot rate is that where we should expect that to trend maybe over the next couple of quarters? I don't think you will get that high. I think new account growth. The volumes are, they're meaningful to us, but they're not, they're not what generates a lot of the bulk of the deposit growth.

Brody Preston: So the net deposit growth, I think quarterpods was 826 million, probably new account growth was maybe half of that, something like that. Okay. All right. And I also just on the, on the loan side, I think you said you had about 300 to 400 million come and do for fixed rate loans. Next quarter, is that a fairly consistent level that we should be thinking about through on a quarterly basis through 2024?

Brody Preston: Yeah, I was trying to do the math in my head because I've got about six billion coming up over a new level in the next two years. And it's pretty evenly as far as weighted more towards the near term. So whatever that number comes out to be probably with, with the CRE renewals. Yeah, it's probably 715 million, something like that in the near tunnel, in the corner. Okay, cool. And then just on the BAC, I appreciate the commentary on some of the puts and the takes there.

Brody Preston: You mentioned that they had a building, that they were planning on selling, that they wrote down. I don't know if you got this granular with them or not, but do you happen to know kind of what percentage the write down was? I'm assuming that that was like an office building or something that they no longer need. Yeah, I think the number, I think they bought it quite 20 something billion. It's down itself Laura, so I think that's what the write down is for free.

Brody Preston: You said they bought it for what? About 20 something million. I want to say it's about a 24 number. Okay. And then I think you said you had 7% of the loans were, were snakes. Do you happen to know of that? What, what year of the lead underwriter on? Yes, sir. Those are all where the other bank is the lead underwriter on the SNICS. We've got about a billion foreign participations that we've sold, but none of those are in the SNIC category.

Brody Preston: Okay. So the SNIC exposure is all, you know, the 7% is just all SNICS that the other banks that will lead underriders on. That's right. And you know how all that works. In order for them to buy our loans, we got to buy their loans. There's a lot of reciprocity in this process. And right right now, I'm running about 2.2 billion or 2.3 billion in a choir. Participations. I'll say the choir snakes. Okay. Then I did just want to follow up, you know, or this isn't really a follow up for this call, but I think it's been asked before.

Brody Preston: You know, just in terms of long-term view on succession planning and, you know, I think you guys have built a pretty unique, unique model, which is attractive, but also, you know, might be challenging for another bank to kind of maintain if they were to try to buy you guys, especially, you know, just just given the independent culture that you have. I mean, how do you think about, you know, long-term kind of the growth path for pinnacle succession planning and, you know, maybe partnering with another bank?

Brody Preston: Yeah, I think our board understands and takes seriously its responsibility for succession planning. They review succession plans at least on an annual basis. I think our succession planning here would probably resemble most people's most bank's succession planning. First of all, you got a plan on two axes. What do you do? Long-term succession and what do you do in the event that our other key members get run over this afternoon? So kind of a long-term plan, emergency plan.

Brody Preston: They have both. I think in the case of long-term succession plans, you, they consider really three or four different variables for how you handle succession. Of course, the one that most people are interested in is internal candidates, and we have a number of high potential candidates that we continue to work with and give expanded responsibilities to and so forth to see how they develop and determine their capabilities over time. We have candidates that are outside the firm that we have talked to and continue to talk to from time to time that have probably both an interest and a capability to come in and work with us and move the company forward.

Brody Preston: Of course, we can do consider a full range of companies that we could acquire to pick up talent and maybe more likely M.O.E.s where there's a like-mindedness and suitable talent there. So, you know, the board considers all those variables, and I think, Brody, I don't know, probably a year ago or more we talked through some grants that were issued to, you know, ensure that existing management stays in place until succession plans are set.

Brody Preston: And so, you know, my belief is that the board's active and has any number of options for how the succession would work as much like, I was a basketball player, you know, in fast break, you fill all the lanes and head to open man. I think that's really what the board view is that look at all the options and make the best play when it's time to make one. I really appreciate that answer, Terry.

Brody Preston: I guess maybe if I could just sneak one more in for Harold, I forgot to ask you Harold, do you happen to have what the reserve on the office portfolio is? It's about 80 basis points somewhere in that neighborhood. It didn't change much from the prior order. So that's where we are. Awesome. Thank you very much. I appreciate everyone. All right. Thank you.

Brody Preston: And the next question is coming from Brian Martin from Johnny. Brian, your line is last. Hey guys, good morning. I'll make it short here. Just the on the margin. Outlook, Harold, it sounds as though if we're at the bottom here, those loans you talked about repricing the fixed rate loans and then just kind of hope the outlook on deposits remaining favorably, you know, I guess should see the margin trend higher as we get into.

Brody Preston: 2024, you know, assuming this, you know, higher for longer environment, is that in general, how you're thinking about the margin here in the coming quarters? Yeah, I think we've got a lot more bias towards a, probably a margin that's going to accrete up and feel the same kind of pressure to run down as we've had over the last couple of quarters for sure. Got you. Okay. All right. And then just on the fee income, just as far as the, you know, kind of big picture, X the BHG commentary you've already given, just the, yeah, as far as the growth you're seeing this year, kind of that mid single digit, you know, mid the high single digit rate.

Brody Preston: Does that feel like a sustainable level? I mean, you talked about the solar piece this quarter, you know, being kind of maybe not one time in nature, but it sounded pretty optimistic about that, that business going forward as well, so just trying to think about, you know, how, health be income looks here. What's sustainable? Yeah, I mean, what we want to make sure is that people understand that's going to be a choppy line item and it has been a choppy line item for the last several years.

Brody Preston: You know, it's kind of a recurring non-recurring kind of thing, but we fully intend to support the solar business. I think we've got several projects that we're looking at currently. The difficulty is trying to forecast when those projects close, and when they get the necessary regulatory approval, so, so we're, we're going to continue to invest in that product. Like I said, we've invested in several industry veterans there that came from some of the large cap franchise, and we like our prospect.

Brody Preston: So, so along that, along with our other equity investments that we've got, we still feel pretty good about the decision we've made on all those fronts and what opportunities that they present us. Okay, so kind of that core, I guess you're calling it kind of the core fee income, inclusive of that, those equity gains, but exclusive of BHG is still, you know, sometimes, including some of the benefits you expect to get in the solar that, you know, mid the high single digits still feels pretty sustainable as you look forward here, at least in the near term.

Brody Preston: I think that's accurate, Rob. Okay, and then just lastly, on the on the reserves, this, you know, I guess is your outlook, maybe I don't know if you hear older Terry just with the normalization and credit. You know, if you do see, you know, charge officer, you know, NPA's tick up a bit here, you know, is there any outlook for a change in building the reserve some, you know, given what the outlook looks like.

Brody Preston: I know for quarter still sounds pretty, pretty strong, but just as you get into next year should we be thinking about. You know, seeing some reserve builders, the current level we're at, you know, more likely sustainable. Yeah, right now we don't anticipate any big build up in the reserves coming in the fourth quarter. We think looking at the credit pipeline, it seems pretty solid at this point. Who knows what will happen going into 2024, but right now we feel pretty comfortable about where we are and what our charge up experience has been.

Brody Preston: Okay, perfect. That's all for me. Thanks, guys. Thank you. There were no other questions in queue at this time, and this does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.